Rising interest rates have ওboosted earnings for U.S. banks in recent quarters. But their upcoming third-quarter earnings reports likely will disclose how that pastꦉ boon has morphed into a burgeoning barrier to growth.

The Federal Reserve's campaign to reduce the highest U.S. inflation in 40 years via boosted interest rates has produced comfortably higher 澳洲幸运5官方开奖结果体彩网:net interest income for U.S. banks in recent quarters.

But that benefit has begun waning, based on analysts' consensus estimates, even as financial data company FactSet predicts overall U.S. bank industry profits rose 4% during the quarter, compared with a projected decline of 0.3% in aggregate earnings for 澳洲幸运5官方开奖结果体彩网:S&P 500 companies.

FactSet forecasts earnings at large diversified banks will rise 7%, while smaller regional banks likely will report profits shrinking by 15%.

Investors' interest, though, likely will center more on what banks say about their quarterly financial results—specifically, how 澳洲幸运5官方开奖结果体彩网:rising rates may challenge their operations moving forward.

"Third-quarter earnings calls are likely to be marked much more by concerns about the impact of rising 澳洲幸运5官方开奖结果体彩网:10-year U.S. Treasury yields—the hit to capital as well as implications for the outlook including a potential 澳洲幸运5官方开奖结果体彩网:harder landing," JPMorgan said i♕n its third-quarter bank ᩚᩚᩚᩚᩚᩚ⁤⁤⁤⁤ᩚ⁤⁤⁤⁤ᩚ⁤⁤⁤⁤ᩚ𒀱ᩚᩚᩚearnings preview.

Implications of Rising Rates

In the third quarter, as the Fed indicated rates wo🦂uld remain higher for longer than was anticipated earlier this year, t𒉰he benchmark 10-year Treasury yield surged 74 basis points to 4.58%.

That's the highest level since before the 2008 澳洲幸运5官方开奖结果体彩网:Global Financial Crisis. It spiked to 4.80% last week before sliding to 4.6% Wednesday.

As rates have risen, so has stress on consumers and businesses. Credit card delinquencies have reached the highest in a decade, and annual corporate bankruptcies have 澳洲幸运5官方开奖结果体彩网:hit their highest level since 2020, already surpassing levels for each of the past two calendar years.

As a result, fewer customers are asking banks for loans, reducing loan growth.

"The higher rate environment, increasing economic uncertainty, balance sheet constraints, and likely tighter credit underwriting standards are clear negatives for loan growth," Wedbush Securities said in its quarterly bank earnings preview. "Loan growth in general ... is very much correlated to U.S. GDP growth, which is likely to 🍬slow/decline in a recessionary environment."

Deposit Doldrums

Meanwhile, banks have had to raise what they pay on deposits to attract cash from customers, many of whom have spent savings from pandemic government programs designed to pr🌞🎐op up the economy.

This spring's 澳洲幸运5官方开奖结果体彩网:banking industry turmoil, reflecting substantial ﷺbalance-sheet l𒅌osses at some regional banks, further pressured bank deposit levels.

With deposit costs rising and loan growth weakening, JPMorgan projects the industry's net interest income in the third quarter fell 3.5% compared with the second quarter.

That decline will feed an accelerating slide into next year, the financial giant said. It forecasts its sector's net interest income will rise 7.2% in 2023 before declining 2.7% next year—after a leap of 19.9% in 2022.

Balance Sheet Woes Persist

While rising rates have increased banks' funding costs, they've also exacerbated losses on their securities portfolios. Such losses led to the 澳洲幸运5官方开奖结果体彩网:failures of Silicon Valley Bank, Signature Bank, and First Republic Bank this spring, and more than a half-trillion dollars of unrealized losses remain on banks' balance sheets.

Investors will watch closely whether those 澳洲幸运5官方开奖结果体彩网:unrealized losses have worsened, es✱pecially at regional banks more exposed to troubled commercial property markets.

Meanwhile, as consumer credit problems mount, banks have increased the amount they set aside to cover loan losses. However, according to a report by BofA Securities, 澳洲幸运5官方开奖结果体彩网:loan loss reserves at both large and midsized regional banks remain below peak levels reached duri﷽ng the pandemic.

Banks likely will increase those reserves further: The question is by how much. At the same time, they've tapped increasing amounts of those reserves to cover uncollected debt, and that upward trend likely will persist.

Large, diversified banks won't get much help from their 澳洲幸运5官方开奖结果体彩网:investment banking🦂 units. As interest rates have surged since early 2022, investment banking revenue and deal volume have plunged. JPMorgan projects industrywide investment banking fee revenue for the third quarter will drop 18% from t🌄he same quarter a year ago.