U.S. Banks: A Normalization of Interest Rates

...Normalization of Real Rates: This report serves as a follow-up to Fitch Ratings' special report, "Unnatural Real Interest Rates," dated April 6, 2017. That report suggests that interest rate increases will be faster than market expectations, while the yield curve flattens over the next few years. This report provides Fitch's views on how such a scenario would affect U.S. banks. Ratings Incorporate Base Case Rates: Fitch's U.S. bank ratings incorporate the agency's base case Fed Funds rate expectation of 2.5% by year-end 2018. A higher interest rate scenario than market consensus, combined with a flattening yield curve, is not likely to impact rating actions. However, banks that are more spread-reliant could see margin pressures as the yield curve flattens. Fitch's rating and sector outlooks for U.S. banks remain Stable. Earnings Impact to Depend on Balance Sheets: Most U.S. banks' balance sheets are asset sensitive and are projected to benefit from rising interest rates. Fitch expects a...

Special Report