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So Why Are Banks Still Optimistic in a Recessionary Period?

The odds are many but there’s a lot to expect from the future.

Call it the worst period that the banking industry has experienced for the past decades but there’s no denying that they are not about to give up now that the stakes have been raised. And whoever believed this year is the start of their demise? Come to think of it, we’ve found very convincing reasons as to why they’re eager to do more business.

First, refinancing applications have soared for the past months. Although the Mortgage Bankers Association recently reported that their Refinance Index fell 18.9 percent for the week ending May 22, general forecasts of refinancing numbers remain stable according to most analysts. On the other hand, mortgage applications continue to surge even with some decreases in some weeks. This is still a good indication of the increased financing by banks.

Second, the Federal Reserve is reportedly buying $1.25 trillion worth of securities this year to pressure down interest rates. This is apart from the $500 billion mortgage-backed securities that it purchased to aid the market. This could put back investor confidence in the market.

Third, most banks have successfully met the Fed’s demands of raising capital in order to repay their TARP funds. In fact JP Morgan Chase already raised $4.6 billion in common equity while Goldman Sachs managed to pool $5.75 billion last April. If other TARP beneficiaries reach their capital requirements, then there’d be no more rumors of bank nationalization that would further distress the banks’ status.

Finally, the job market is slowly recovering according to most estimates. Instead of the forecasted 9.4 percent jobless rate, unemployment only settled for 8.9 percent, a still high figure but enough to spur talks of revised declines. The best industries for job growth are still health services and education.

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