Bankers fear the Federal Reserve's plan to rapidly raise interest rates could be too aggressive.

A recent survey from IntraFi Network LLC found that the majority of bank executives believe the Fed will overcorrect for inflation by raising rates too fast and high. Comparatively, 27% of respondents said they believe the Fed is on the right track and 21% believe the Fed may not raise rates fast enough and high enough to rein in inflation, according to the results. IntraFi distributed the survey to U.S. bank executives via email between April 4 and April 17 and 422 bank CEOs, presidents and CFOs responded.

Interest rates

"Unbelievable rates, high rates" are on the horizon as the Fed works to combat inflation, Home BancShares Inc. co-founder, Chairman, President and CEO Johnny Allison predicted on the company's first-quarter earnings call on April 21.

"They got to crank like hell," Allison said. "It's conceivable that you could see Fed funds at 7%. It's conceivable that that could happen. So I'm not predicting that. I'm just saying that's awful conceivable."

The IntraFi survey also found that U.S. banks are holding off on raising their deposit rates until the Fed funds target reaches higher levels, with 34% saying they will wait until another 50-basis-point increase and 38% saying they will hold off until another 75-basis-point increase.

Bank policy issues

Among the seven listed bank policy issues, banks seemed most concerned about the Consumer Financial Protection Bureau's current stance on "junk fees," which include overdraft fees and late fees. Nearly 42% of respondents said they are "very focused" on the CFPB's crackdown on such fees.

Just last week, Atlantic Union Bankshares Corp.'s CEO said on the company's first-quarter earnings call that the CFPB is "broadly making inquiries across the industry around overdraft practices."

As a result of both competitive and regulatory pressures, a number of banks have begun to change their overdraft fee policies in recent months.

But not all banks are feeling that pressure just yet. IntraFi's survey found that 25% of respondents are not focused on the CFPB's probe into "junk fees."

Similarly, Prosperity Bancshares Inc. Senior Chairman and CEO David Zalman said April 27 that the Houston-based bank will likely not update its overdraft policies anytime soon.

"I'm not saying we'll never do it. If things ever got competitive where we were losing business and not growing, we would have to do it," Zalman said on the company's first-quarter earnings call. "But right now, when I see our lobbies and when those customers are coming from the other banks, we don't have to do it right now. They're still coming to us. And those are the banks that have lowered their fees. So I don't see why we would do it."

The IntraFi survey also found that banks are keeping an eye on the CFPB's small business reporting proposal, with 41% of respondents saying they are "very focused" on it.

Banks are less focused on the debate over the creation of a central bank digital currency, the debate over regulatory standards for stablecoins and the Securities and Exchange Commission's climate change disclosure proposal, with only 12.8%, 10.9% and 19.4% saying they are "very focused" on the issues, respectively.

Lastly, 30.6% of respondents are "very focused" on the bill related to allowing financial institutions to provide banking services to cannabis-related businesses.

Economic conditions

Inflation, a faster-than-expected rising rate environment and the Russian invasion of Ukraine have cultivated greater economic uncertainty throughout the first months of 2022.

Some bankers are feeling that pressure, with 43% of respondents saying overall economic conditions will be "moderately worse" 12 months from now. Another 4% believe overall economic conditions will be "significantly worse."

Comparatively, only 26% of respondents believe overall economic conditions will be "moderately improved" or "significantly improved" in the next 12 months.