Fitch’s U.S. bank sector outlook for 2022 is neutral compared to 2021 (negative), reflecting its expectation that bank fundamentals will begin to normalize in 2022, following a strong 2021 characterized by robust capitalization, continued influx of deposits, and record earnings primarily supported by unsustainably low credit losses.

Fitch expects solid economic growth of 3.9% in the United States in 2022, with the unemployment rate continuing to decline, creating beneficial conditions for U.S. banks.

Although the sector outlook for 2022 is neutral, the key risks confronting U.S. banks are notably different from those confronting the sector in 2021. The risks of higher, longer-term inflation have increased. Supply chain issues have gotten increasingly pronounced, with little prospects of abating in the foreseeable future, affecting both consumers and businesses and adding to economic headwinds. Furthermore, banks will have issues related to the LIBOR transition, as certain LIBOR rates will no longer be disclosed in 2022.

M&A activity in the banking industry will continue high, particularly among smaller banks.