U.S. banks have to date “successfully weathered the storm of low energy prices,” according to researchers at the Federal Reserve Bank of New York. While the ratio of non-performing commercial and industrial loans at “energy-sensitive” banks has ticked up by roughly 80 basis points since oil and gas prices began declining in mid-2014, there is little evidence of higher NPL ratios at non-sensitive peer banks in the same areas or at non-sensitive community banks.
The energy downturn, which has seen oil prices plummet by nearly two-thirds since 2014 before stabilizing at around $50 per barrel, has also had “only a modest effect” on overall bank profitability and capital levels. “The oil- and gas-dependent banks also appear better capitalized than either comparison group, at least based on regulatory measures of capital,” the researchers said.
They contrasted the present situation to the 1980s-era wave of bank failures linked in large part to an earlier energy slump. The researchers argued that today’s greater geographical diversification in banking is insulating many individual institutions from sector-specific shocks.