March Madness is upon us. NCAA Basketball - not the political scene in Washington, D.C.!
Over the next several months, you should be identifying key issues that may be impacting your bank over the next five years. You may have several key topics for review, including regulatory environment, 2020 election, technology and FinTech developments and the economic environment.
Let’s identify key issues of focus relating to the economic environment in this review.
U.S. ECONOMIC EXPANSION IS AGING.
As you discuss the economy and the possible direction during your upcoming 5-year planning cycle, it is worth noting the age of our current national economic expansion.
By the start of 2020, the economic expansion will have been 126 months in duration. This is a record expansion cycle.
There is no reason to suggest that a true recession with negative GDP growth will occur, but it is reasonable to expect growth to continue to slow. Likewise, this is a national perspective - what is more important is your reading of your local economy.
“SLOW GROWTH” ECONOMIC SCENARIO?
Signals supporting a “slow growth” economy:
No component of economy poised for standout growth.
Job growth has been slowing.
Global economies slowing.
2020 U.S. election.
Specific industries within your local economy.
FLAT YIELD CURVE ENVIRONMENT.
The Fed has raised interest rates with the short-end rising.
But the strong dollar and slowing global economies has pushed long-term yields downward.
The yield curve is now flat or even showing an inverted mid-range.
How long will this flat yield curve continue?
So as you begin to evaluate the next five years of your strategic planning, you need to give focus to the economy - nationally and, more importantly, locally.
If there is a slow growth economy and a continued flat yield curve environment, what will be the impact on your bank’s performance?
Will your net interest margins be pressured?
Will loan demand slow or even falter?
Will you see any deterioration in credit quality?
What will be impact on your capital levels and dividends for shareholders?
These are all important issues relating to the impact of a slowing U.S. and local economy. This should be one of the key topics discussed this summer at your strategic planning session.