In April, some of the world’s biggest banks reported lower profits for the first time in nearly two years—largely due to losses and precautionary measures stemming from inflation, the Russia-Ukraine war, and a historic labor shortage. In response, the Federal Reserve announced earlier this month that it would raise interest rates half a percentage point, the largest increase since 2000.
Yet in our Quarterly Executive Poll, financial services respondents were more optimistic than one might think. They also provided insight into how they’re navigating present challenges and what they’re hopeful about moving forward.
When asked what’s disrupting banking systems the most, nearly half (46%) of executives chose inflation. But our survey dug deeper to find out where inflation was having the biggest impact. The top two responses—talent recruiting or retention (61%) and wages/compensation (54%)—involved the labor supply, which contracted in April even as the US added 428,000 new jobs.
“You can see that the labor market is out of balance,” Fed chair Jerome Powell said after the interest rate announcement. “We’ve got to get back to price stability so that we can have a labor market where people’s wages aren’t being eaten up by inflation, and where we can have a long expansion, too.”
The war in Ukraine was the second most disruptive force on banking systems, with 26% of respondents citing it as a factor, followed by cyberattacks (15%).
It tracks, then, that in response to broader geopolitical and supply chain instability, executives are overwhelmingly increasing their spend on cybersecurity (61%). They’re also reducing overall spend (54%), paring back operations and investments in certain countries (35%), and nearshoring/reshoring talent (22%) and suppliers (15%).
Despite these challenges, executives appear cautiously optimistic: When asked to rate on a scale of 1 to 5 how much recent bank losses are affecting their outlook (5 being “greatly”), only 20% selected 4 and none selected 5. This may be in part due to their increased ability to respond to such disruptions—more than half said their companies had somewhat (37%) or drastically (15%) improved their agility on this front since pre-pandemic. That agility will pay off in the long run when water finds its level in the industry.
See what all industries said about inflation, the war on talent, and more—and learn about the poll respondents—in our main Quarterly Executive Poll.