What banks do in the second half of this year and into 2023 is going to depend a lot on what the Fed is doing, and what the reaction has been. In this Motley Fool Live segment from "Ask Us Anything," recorded on April 11, Fool.com contributor Lou Whiteman explains why simply buying good companies and keeping them may be the best approach right now.
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Lou Whiteman: Basically banks are in the business of buying and selling money. It's a very pure business and so the rates, the spread between what they borrow or your savings rate and what they lend, your lending rate is how they make their money. Almost universally, the rates on the lending side go up first, so the banks in a typical time have a real chance in a rising interest rate environment. They price the loans up first before or more aggressively than they come back with raising your savings rates and they tend to make more money. I would assume to ProShopGuy's point, yes, we're going to see that in the quarters to come. Whether or not it's sustainable and whether or not there's going to be guidance, I tend to agree with Jamie, that there is the biggest get out of jail free card by any company that will give guidance this year between what the Fed is doing with Ukraine, with supply chains, with energy prices. Why bother give guidance? You have so many excuses not to, so I'm not going to ding them for that.
But I do think it, again, I tend to be one who is worried that inflation is going to be around a lot longer than some are saying, I'm not really in the Transtar camp, but again to use this word over and over this morning, what the commercial side of the banks do in the second half of this year into 2023. A lot of that is going to depend on what the Fed is doing, and what the reaction has been. It's really hard to say whether that's sustainable, but the best banks know how to deal with this. Buy good companies and keep them.