Banks Support Maintaining Fed Independence, Survey Finds

A new poll shows bankers support shortening Fed terms, but overwhelmingly reject more intrusive steps

ARLINGTON, Va., Oct. 29, 2024 /PRNewswire/ -- Although some bankers support limited measures to change the structure of the Federal Reserve, they predominately reject calls to require the central bank to consult with the president on monetary policy, according to a survey released today by fintech IntraFi.

The survey of more than 400 banks found only 5% of respondents would support an effort to "force" the Fed to consult with the president on interest rate decisions, and just 7% wanted to give the president the power to demote or replace a Fed chair.

That does not mean bankers don't endorse other changes to the Fed, however. Nearly a quarter of respondents said they would support reducing the length of terms for Fed board officials. Each Fed governor serves a 14-year term, though they are staggered so they don't expire at the same time. The Fed chair and vice chairs serve for four-year terms in those roles.

"When it comes to the Fed, bankers are mostly wary of making changes," said Mark Jacobsen, CEO and Cofounder of IntraFi. "Some favor quicker turnover of senior leaders, but the vast majority draw the line at political interference with setting monetary policy."

A fifth of bankers said they would also support subjecting the Fed to the congressional appropriations process. That would be a sizable change for banking regulation. The three banking agencies tasked with prudential regulation of financial services are self-funded.

The survey also tackled other issues related to the Fed, namely its decision to begin lowering interest rates and how banks are responding.

Eighty-one percent of bankers said they have lowered the returns on interest-bearing deposit accounts in response to the 50-basis point cut in the target for the federal funds rate. Lower rates are not translating into less competition as 55% of bankers predict competition for deposits will remain intense. Thirty-four percent said deposit competition will increase over the next 12 months.

Banks are focused on two possible responses: Sixty-one percent said they are considering offering higher returns for certain customer types while 59% said they may pay higher rates on select account types.

When it comes to what is worrying banks the most, 38% cited the prospects of a recession, and 31% pointed to potential future rate cuts. Regulatory concerns finished third, with only 17% saying it was the biggest threat to industry margins.

Other Highlights

• Loan Demand: A majority of banks (53%) expected higher loan demand in the next 12 months.
• Funding Costs: Eighty-two percent of respondents predicted that funding costs will decline.
• Deposit Competition: Forty-nine percent cited no change over the past 12 months while another 37% reported more competition.

IntraFi's Q3 2024 Bank Executive Business Outlook Survey garnered responses from CEOs, presidents, and CFOs at 416 unique banks across the country. Download the full report.

About IntraFi

A trusted partner chosen by more than 3,000 financial services companies, we define success not by the volume of transactions we enable, but by the quality of relationships we form. Our network, established over 20 years ago, connects institutions of all sizes to help participants build stronger relationships with their customers, fund more loans, seamlessly manage their liquidity needs, and earn fee income. The network brings scale, giving each participant access to tens of billions of dollars in funding, the highest per-depositor and per-bank capacity, and the peace of mind of being able to make large-dollar placements.

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SOURCE IntraFi