Skip to Content
US Videos

Can We Bank on Banks?

Our latest research looks at how banks might be affected at this point in the economic cycle.

Mentioned: , ,

Eric Compton: The current economic expansion has gone on for more than 10 years, and it seems we are closer to the end of the cycle than the beginning. As such, having a view on future credit costs for the banks is invaluable. We find that bank's credit costs are difficult to analyze for investors, and for good reason. It is quite difficult to gather and make sense of the disparate, diverse, disjointed, and even discordant information available on the subject. To help investors make sense of credit costs for the banks, we recently conducted a deep dive on the subject. We find that predicting the timing of a cycle in inherently difficult, if not impossible, but even if perfect timing isn't a given, there is still room for worthwhile analysis. 

In our deep dive, we analyzed each section of the debt markets, analyzing where we see elevated risks and where we think the risks are manageable. Our big takeaway is that risks currently appear manageable for the banks, with the riskier asset classes generally being concentrated outside of the banking system. As an example, we see some of the most irrational behavior within student lending, but over 90% of this market is controlled and underwritten by the government, not the banks. We also dive into leverage loans and CLOs, two areas which have captured investor and regulatory scrutiny over the last several years. Again, we find that the risks here appear manageable for the banks, and we see nothing like a 2007-type buildup occurring today. As such, our overall thesis is that the next downturn will be mild compared to 2007, and it will not be as concentrated within the large banks.

Eric Compton does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.

We’d like to share more about how we work and what drives our day-to-day business.

We sell different types of products and services to both investment professionals and individual investors. These products and services are usually sold through license agreements or subscriptions. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters.

How we use your information depends on the product and service that you use and your relationship with us. We may use it to:

  • Verify your identity, personalize the content you receive, or create and administer your account.
  • Provide specific products and services to you, such as portfolio management or data aggregation.
  • Develop and improve features of our offerings.
  • Gear advertisements and other marketing efforts towards your interests.

To learn more about how we handle and protect your data, visit our privacy center.

Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.

To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.

Read our editorial policy to learn more about our process.