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U.S. Banks Will See Only Moderate Benefit From Fed Rate Hike

Moody's says the banking outlook is stable but there are headwinds ahead.

U.S. banks will see only a moderate benefit from any interest rate increase from the Federal Reserve, according to Moody’s, which has published its outlook for the banking sector in 2016. ‘We’re concerned about the impact of low short-term interest rates on the banks and specifically the revenue pressure that creates,’ said Joseph Pucella, a vice president of Moody’s and one of the authors of the report. ‘With the revenue pressure, that really encourages banks to loosen underwriting in order to grow loans.’ Pucella also said he’s seeing signs of weakness with some corporate loan indicators. Additionally, he expects more cost cutting ahead for banks. He pointed to U.S. Bancorp (USB) and Wells Fargo (WFC) as two banks that have shown efficiencies, which has helped improve their returns. Moody’s currently has a stable outlook for the banking sector, thanks to strong liquidity, and improved capital ratios.

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