WGA Releases Banking Industry Outlook

Whalen Global Advisors LLC (WGA) has released its latest edition of The IRA Bank Book for Q3 2024, offering a quarterly outlook for the US banking industry. The report highlights improved income for the US banking sector compared to the lows of late 2023 and early 2024.

Despite deteriorating commercial real estate exposures, consumer loss rates have fallen for three consecutive quarters. The recent increase in market interest rates has allowed banks to manage COVID-era security losses, offset by gains in newer securities.

WGA Chairman Christopher Whalen states, "There is no evidence of a consumer recession in the latest bank data." He notes minimal shrinkage in bank deposits despite the Federal Reserve's quantitative tightening, attributing it to stable reserves.

The report also underscores the negative loss severity on bank-owned mortgages due to significant home price inflation under the Biden Administration. The net loss rate in Q2 2024 for $2.7 trillion in mortgages was -25%, meaning lenders profit upon foreclosure.

Whalen warns that impending Fed rate cuts may further inflate housing costs, questioning the FOMC's credibility on controlling inflation.