I just finished my 24th year lecturing at the Graduate School of Banking at Louisiana State University. A quarter of a century passes quickly in the heart of Bayou country, where Mike, the real tiger, is housed near the football stadium as the LSU mascot! This year’s session had 517 bankers and regulators who hailed from 19 states, including 46 bankers from south of the border in Mexico. As usual, my full-day lectures were in the Small Business Enterprise Lending and Interpreting Economic Change courses.
This year Dr. Tom Payne, of the University of Tennessee at Martin, and I used anonymous “clicker” technology to get instantaneous responses on various questions pertaining to the economy and banking from our seniors in the Interpreting Economic Change course. The following are some interesting results from this class of bankers.
Everyone is watching the U.S. Federal Reserve and the central banks of the world. The bankers were asked to provide their feedback on when there would be an increase in the fed funds rate. No bankers expected an increase in 2013; however, some indicated that tapering off of bond purchases and mortgage-backed security purchases could occur. Twenty-five percent expected an increase in early 2014, while 43% said late 2014, and 31% said the federal funds rate would not increase until 2015.
Digging deeper, the future banking leaders were asked when the 10-year treasury yield, which was 2.1% at the time of the school, would exceed 3%. Only 2% of the class expected an increase to 3% in 2013. Eighteen percent said early 2014, while 38% expect late 2014, and, surprisingly, 41% expect 2015 or later. As a side note, within a month, the 10-year treasury reached 2.6%, its fastest percentage gain in 60 years!
With farm profitability and land values hinging on interest rate direction, if bankers are correct in their assumptions, farm profitability based on low interest rates and accommodative Federal Reserve action should prevail for a while longer.
Next time, I will cover the bankers’ thoughts on unemployment, the number of banks in the future and how they would invest a windfall of $10,000. Stay tuned!
Perspectives from LSU
- It was a general consensus this year that regulation in the form of the Dodd-Frank Act is both a time and cost of doing business burden on the banks.
- The Mexican bankers were quite bullish on their economy, since their new president, Nieto, is pro-economic reform. It is interesting to note that Dr. Alan Greenspan, former U.S. Federal Reserve Chairman, was a recent visitor to Mexico to meet with their president and leading bankers to provide insight and advice.
Editor’s note: Dave Kohl, Corn & Soybean Digest trends editor, is an ag economist specializing in business management and ag finance. He recently retired from Virginia Tech, but continues to conduct applied research and travel extensively in the U.S. and Canada, teaching ag and banking seminars and speaking to producer and agribusiness groups. He can be reached at [email protected]