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FDIC QUARTERLY | JANUARY 4, 2024 |
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FDIC Quarterly Report Compares the Effects of High Inflation on Banks in the 1970s and the Recent Period
Persistently high inflation can affect banks in various ways as monetary policy tightening and macroeconomic changes occur. In the 1970s, the United States experienced two periods of stagflation: high inflation and sluggish or negative economic growth and high unemployment. In 2022, inflation reached its highest level since the early 1980s, but economic growth and employment remained solid. The FDIC report “Implications of High Inflation for Banking Outcomes and Deposit Flows: Observations From 2021 to 2022 and the 1970s” compares lending and bank performance during the stagflation periods of the 1970s and recent high inflation with a focus on the effects on deposits.
The FDIC report finds that:
- Loan growth and loan performance differed between the two periods. They depended more on broader economic conditions and the specific circumstances than on inflation.
- Robust deposit growth in the 1970s suggests that banks were actively seeking deposits, while in 2021 to 2022, banks generally were flush with deposits as a result of varying pandemic support programs.
- The differences between the two periods illustrate the importance of considering broader macroeconomic conditions when analyzing the effects of inflation on banks.
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