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ICBA Chief Economist Says Community Banks In Solid Shape in 2007

Orlando, Fla. (May 21, 2007)—The Independent Community Bankers of America (ICBA) Chief Economist Paul Merski said community banks are in a strong capital position and well-positioned for the slower economic growth environment in 2007.

"Community banks are solid because they are well-capitalized and will likely see beneficial improvement as the Federal Reserve Board shifts its monetary policy to lower rates in the near future," said Paul Merski, ICBA chief economist and director of tax policy, speaking in Orlando, Fla. to ICBA's Emerging Leaders Forum, a gathering of community bankers.

"The economic cycle is at a transition point and settling into a slower but steady growth rate through 2007," said Merski. "Fortunately, community banks are nimble and adept at adjusting as the economy changes. Community banks will benefit from an improving yield curve in the months ahead. The improving shape of the yield curve should take some pressure off banks' compressed net interest margin going forward."

Merski also called attention to several positive signs in the economy. Chief among these are:

  • Solid employment and continued income gains supporting consumer spending.
  • No dominant spillover impact on consumers from the sharp housing market correction that is still ongoing.
  • Good corporate earnings and the continuation of beneficial lower tax rates on capital, investment and savings that are reflected in higher stock market levels.

"The economy will remain resilient in 2007 and good for the community banking industry," said Merski. "Rising energy costs should moderate in the second half of 2007, advantageous monetary policy, a steady job market, reasonable borrowing rates, and solid consumer spending will keep the economy growing at a steady clip of 2.5 percent or higher for 2007."