In this edition of Industry Focus, host Michael Douglass and Fool contributor Matt Frankel discuss bank catalysts. Bank stocks have been some of the market's top performers over the past year or so, but they could potentially climb even higher over the next few years. In this video, Michael and Matt discuss two big possible catalysts for the banking industry.
A full transcript follows the video.
This video was recorded on Oct. 23, 2017.
Michael Douglass: Let's go back now to the overall sector. There are a few catalysts for banks moving forward that investors should be aware of. First off, interest rate increases.
Matt Frankel: Yeah. Generally, when interest rates go up, the banks profit. They call it net interest margin. The bank's profit margin expands. That's the difference between what a bank can make on its loans and what it's paying for deposits and things like that. So as the Federal Reserve is expected to increase interest rates at least a handful of times over the next few years, this should also increase bank profits.
Douglass: Yeah. Their ability to pocket that bigger spread between what they're paying for deposits and what they're getting for loans will be, hopefully, a big driver for the bank's underlying businesses in a higher-interest rate environment. Secondly, let's also talk about deregulation. This is something we've talked about in several Industry Focus: Financials episodes. Frankly, the banking sector is very interested in there being some deregulation so that they can find different ways to leverage that money for better profitability.
Frankel: That's especially true in these big banks, once they're above that $50 billion asset threshold, which everything we've talked about is. Then the regulations just jump to another level.