Banking System ‘Sound and Resilient’ as Regional Banking Sector Remains Under Pressure

Even with regional banking challenges, small business owner sentiment about current business conditions marks a significant upsurge 

Following the JPMorgan Chase purchase of First Republic Bank in early May, the regional banking sector remains on edge as the Federal Reserve approves another quarter-point interest rate increase in early May. Signaling that additional hikes could be put on pause, Chairman Jerome Powell assured a jittery market that the U.S. banking system is “sound and resilient.” A move that should reduce turbulence in the regional banking sector, the Chase purchase of First Republic was largely viewed as a positive by economic analysts. “Given its size, wealth, and management skills, JPMorgan was the best choice,” says Odeon Capital analyst Richard Bove in MarketWatch reporting. “This acquisition appears to offer rich rewards over an extended period of time.”

While the takeover and subsequent sale of First Republic was far less messy than the regional banking failures and fallout in March, apprehension remains. “The orderly resolution of First Republic by the nation’s biggest lender was supposed to quell concerns about the state of the American banking system, not reignite them,” according to CNBC reporting. But veteran banking analyst Christopher McGratty says the current environment is more about sentiment than substance. “We’re in this situation that feels a lot like March, where [people] are trading stocks on fear and not fundamentals.” So far, regional banking challenges have been contained to the U.S. with little international impact, even in neighboring Canada, but global markets remain on alert.

The regional banking news comes as the mood on Main Street trends upward among small business owners, according to the latest CNBC and Momentive quarterly survey. “Forty percent of owners describe their current business conditions as good, up from 34% in the first quarter,” reports CNBC. “And 46% say they project revenue to increase in the next year.” The survey was conducted between April 17-24 with more than 2,200 small business owners. While concern over inflation remains high, the majority of small business owners polled say they’re “confident their business capital is secure.” This conviction is in part due to confidence in their banking partners, with more than 60% reporting they are banking with community or regional banks.

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