Regional Bank Corrections Remain After Earnings

The Federal Reserve is raising the federal funds rate, which is supposed to benefit regional banks, but that has not been the case. Conventional wisdom does not work when the banking system has experienced a credit crunch, a zero percent funds rate, three waves of quantitative easing, and now a long and tedious so-called normalization of monetary policy by the Federal Reserve. When the Federal Reserve cut the federal funds rate to 0.00% to 0.25% back in December 2008, banks had a difficult time managing net interest income. The first hike in the funds rate to 0.25% to 0.50% occurred in December 2015, and many banks already had a mismatch between short-term funds and longer-term interest-bearing assets. This policy kept going as the Fed was slow to raise rates. The second rate hike to 0.50% to 0.75% occurred in December 2016, and then the pace picked up with three hikes in 2017, bringing the rate to 1.25% to 1.50% in December 2017.