U.S. regional banks are reporting resilient loan demand as third-quarter results provide another indication that businesses have continued borrowing despite elevated interest rates.
A group of regional lenders reported stronger earnings, supported by continued business-loan demand and improving interest income.
The results matter because regional banks provide financing to a broad range of small and midsize companies that are less likely than large corporations to raise money directly in bond markets.
Their lending activity can therefore provide a useful indication of economic conditions beneath America’s largest publicly traded companies.
Higher interest rates create competing effects for banks.
They can increase the income earned on loans, but they also raise funding costs and can eventually weaken credit demand or increase defaults if borrowers become financially stressed.
So far, the latest results indicate that lending has remained comparatively resilient.
That is consistent with other recent U.S. data showing continued economic activity even as businesses contend with expensive financing and higher energy costs.
The question is whether that resilience survives if interest rates remain elevated for longer.
Investors should watch loan growth, deposit costs, net interest margins and delinquency trends during coming quarters. Those measures will help determine whether regional-bank strength reflects durable economic demand or merely a delayed response to tighter financial conditions.
