March 19, 2022 / VOLUME NO. 201


Groundhog Day

In a bid to tamp down the highest inflation rate in 40 years, the Federal Reserve raised a key interest rate by one-quarter of a percentage point this week, with more interest rate increases expected this year. 

Bank leaders must pay attention to the effects of rising rates, inflation and high oil prices on their customers. One such leader is the thoughtful chairman and CEO of M&T Bank Corp., René Jones, who in his shareholder letter a few weeks ago noted the different effects of the pandemic on what he termed “savers” and the “financially vulnerable.” 

M&T tracked deposit accounts and found that average balances rose during the pandemic as federal stimulus lifted all boats. However, not all boats stayed equally lifted. Those who had higher balances before the pandemic — $2,500 or more — cut back on spending for entertainment, dining out and travel. Their average deposit account of $31,371 in January 2020 soared to $44,807 in November 2021, with 69% of that increase due to a reduction in spending.

However, accounts with lower balances pre-pandemic saw their expenses rise on everything from car payments, groceries, utilities and gasoline. The “financially vulnerable” saw their balances rise from $787 pre-pandemic to $3,087 by November 2021, in part due to unemployment insurance and stimulus payments. However, they’ve seen a 40% increase in their daily expenses as well. “These lower-income households were buffered from the worst effects of the pandemic by emergency assistance but, in the time since, their incomes have stagnated and their expenses have increased, leaving them right back where they started — a virtual financial ‘Groundhog Day,’” Jones wrote. 

Like all good CEOs, Jones is keeping an eye on how inflation will impact his customers. “This is not a healthy situation, either for households or the businesses that rely on their spending,” he wrote. 

I would venture a guess that other types of businesses are feeling this impact, including those with high expenses in oil and natural gas. Inflation, coupled with low unemployment, may also force employers to raise wages. Bank leadership teams should ensure they’re keeping close contact with customers, especially businesses with weak credit or those who may be negatively impacted by inflation. We may be in for another Groundhog Day.

• Naomi Snyder, editor-in-chief of Bank Director


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