The overwhelming majority of top leaders at large commercial banks who took part in a recent survey think the United States and Canada will enter a prolonged recession in 2023.
Although almost none of them expect the eventual downturn to be particularly severe, nearly half of the executives are anticipating a recession that will last more than two quarters, according to the survey, which was conducted by Boston Consulting Group.
The results were based on input from top-level executives in corporate lines of business and risk functions at 10 of the 25 biggest U.S. commercial banks and three of the six largest in Canada.
While unemployment rates and delinquencies remain low for now, "there's definitely an expectation that we're heading for a tough environment," said Pieter van den Berg, managing director and partner at BCG, where he leads the firm's corporate banking segment in North America.
"And the vast majority think it will be a recession that will be quite significant, maybe beyond 2023," he said. "I think there's a bit of a contradiction between what people see happening today and what they see ahead of them."
Bankers have had a recession on their minds for several months, in part because of the Federal Reserve's decision to tackle inflation by rapidly raising borrowing rates. Since March, the central bank has increased its target interest rates by 3.75 percentage points to the 3.75% to 4% range.
The Fed has raised rates by three-quarters of a percentage point after each of the past four Federal Open Market Committee meetings. The last FOMC meeting of the year is scheduled for Wednesday, and industry watchers largely expect
At an industry conference last week, executives at large and regional banks spoke about the likely shape of a recession.
"We think it could be like a lowercase v, mild and short," said Marianne Lake, co-CEO of community and consumer banking at JPMorgan Chase.
Jeffrey Brown, Ally Financial's CEO, said: "Obviously, every recession or every tough environment is going to be different than the last. So we don't think that 2023 is going to pan out specifically like we've seen in prior recessions or prior tough conditions. And our call is for more of a soft landing to a mid-landing."
On Monday, economists at Bank of America Global Research declared that a recession is all but inevitable in both the United States and Europe. "Expect a mild U.S. recession in the first half of 2023 with a risk that it starts later," the Charlotte, North Carolina, bank said in a press release.
The BofA economists said that they expect oil prices to remain higher for longer, and that while consumers will get some relief from rising prices, higher unemployment will hinder consumer spending.
BCG's findings line up with those from
In preparation for an economic slowdown, nearly 80% of the respondents to the BCG survey said they are taking a closer look at ongoing risk monitoring and measurement. Half said they are positioning themselves to grow and take advantage of market share opportunities that may arise during a recession.
Meanwhile, about 44% said they are focused on enhancing automation to handle higher volumes of credit modification and other requests that may arise in a downturn.
More than half of the respondents said their largest risk management challenge right now is the lack of real-time visibility into their customers' changing credit quality. In fact, 78% of the respondents ranked real-time visibility as one of their top three challenges.
There is one potential upside to a downturn: opportunities for some banks to increase market share by way of merger-and-acquisition deals, van den Berg said.
While there has been heavier regulatory scrutiny of some of the largest recent M&A deals, there are "still more than 5,000 banks in the U.S. and a lot of room for M&A," van den Berg said.
"In our view, there's a real opportunity for those well-prepared banks to take share," he said.
