CBSI: Economy strong, but reg, monetary policy concerns continue

Tom Siems

Community bankers have positive views of current economic conditions but are concerned about regulations and monetary policy, according to the most recent Community Bank Sentiment Index. 

The second quarter results, released this week by the Conference of State Bank Supervisors, showed a sentiment index of 115, the same as 1Q 2021 but 25 points higher than a year ago. Anything above 100 indicates a positive sentiment.

“Similar to last quarter’s survey, community bankers expect better business conditions, higher profitability, stronger capital spending, greater franchise values and plan to expand operations in the coming year,” said CSBS Senior Economist Tom Siems in the July 13 report. “Yet at the same time, community bankers worry about a regulatory environment that is more heavy-handed and harmful longer-run economic outcomes from possible monetary-policy missteps.”  

Other 2Q 2021 findings include:

  • The monetary policy component fell seven points — 96 to 89, suggesting the Federal Reserve’s monetary policy decisions are more negatively impacting community banker outlooks for the coming year. 
  • Regulatory burdens remain the greatest concern for community bankers. The current value of 26 signals community banker anxiety that bank regulation could be more heavy-handed in the future; however, that reading improved by 5 points from last quarter’s historic low of 21. 
  • The franchise value component also increased by 5 points to 155, returning to the average quarterly level recorded in 2019 and significantly above the low of 98 one year ago during the depths of the 2020 recession.

Stephen Goodenow, Bank Midwest chairman of the board, echoed positive sentiments included in the report. He noted the financial situation for most Bank Midwest customers has improved during the pandemic, especially ag producers. Previously, ag clients had been struggling with low commodity prices. When COVID-19 struck, the federal Paycheck Protection Program and other initiatives for livestock and grain producers helped. Commodity prices have also rebounded: The U.S. Department of Agriculture reported last November that a resurgent U.S. economy would lift commodity prices across the board this year. In its first projections for 2021, the USDA said growers would harvest a record amount of soybeans at an average of $10 a bushel due to strong demand. The USDA predicted the corn crop to be the second-highest ever this year. Goodenow said he expects farmers will buy more land as the ag economy continues improving. 

“People feel like their customers are really in pretty good shape,” he said.  

Goodenow said growth is not limited to the ag industry, however; tourism is off to a great start in Okoboji this summer, and restaurateurs and others say numbers are above 2019 levels.

Though Goodenow said regulatory burdens are something Bank Midwest constantly addresses, the issue isn’t of top concern currently. Goodenow is also optimistic about the 12-month economic outlook, as long as the COVID-19 pandemic continues waning in many areas of the U.S. 

 “We are poised for some really good economic times if the pandemic continues becoming less of an issue,” he said. 

 Terrence Greenley, chair of Sigourney, Iowa-based County Bank, said his organization is “cautiously optimistic.” 

“We’re having a good year,” he said. “There’s a lot of positive things in the news for farmers and for businesses.” 

However, Greenley doesn’t necessarily see those trends continuing into 2022: He is not sure of whether relatively high grain prices will continue into next year due to unknown future weather and market conditions and is aware of the existing labor shortage businesses face. He said that the situation should improve as wages adjust and more people are able to make “a living wage.”