Changing Economy Likely to Test Banks as Stimulus Ends, Growth Slows

Southwest Economy, Second Quarter 2022

Amy Chapel and Kory Killgo

Banks in the region and the U.S., which have benefited from pandemic-era fiscal stimulus, face downside risks arising from Russia’s invasion of Ukraine, ongoing COVID-19 shocks abroad and expectations of significant central bank tightening to address elevated inflation. If a meaningful macroeconomic shock occurs, banks could face decelerating loan growth, deteriorating asset quality and declining earnings.

The challenges to banks are numerous: decelerating global growth, high inflation, potential structural economic change, significantly tighter central bank policy and high cybersecurity risks.

All these factors confront institutions in the Eleventh District and…

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