The banking industry has been through a rough patch in 2023 with the collapse of several regional banks, increased regulations, and higher interest rates encouraged by the Federal Reserve. Citizens Vice Chair Brendan Coughlin joins Yahoo Finance to discuss what lies ahead as the financial sector deals with a looming credit crisis and an economic hard-landing scenario leading into 2024.

"There's a lot of dynamics to face. I would say the resiliency and the strength of the consumer [is] still really strong despite all that, and I think there's a chance that the strength of the consumer is really what's going to make the difference in this economy in 2024 to really buoy the US economy to navigate well," Coughlin states.

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Video Transcript

- The banking industry managed to navigate a year. Rocked with uncertainty and elevated rates and a slew of bank collapses, now the industry looking to recover ground in the face of more robust and demanding capital requirements from regulators. 2024 is shaping up to be another transformative year for banking.

What challenges and opportunities lie ahead for the sector? We're here to break it all down. We've got Brendan Coughlin, who is the Citizens vice chair and head of consumer banking. Great to have you here in studio.

BRENDAN COUGHLIN: Hey, thanks for having me.

- Absolutely. Let's think about and game out 2024. Coming off of the financial and kind of banking crisis that was 2023, at least in March, and then the consolidation that took place afterwards, there was a lot for consumers to really wrap their heads around in their own relationships with banks. How does that change perhaps the structure of many of those relationships going into 2024?

BRENDAN COUGHLIN: Yeah. It's really complex operating dynamic. And you even pull back further from the banking crisis, and the impact to the economy and the US consumer coming off of COVID created sort of unnatural strength in the consumer with tons of deposits, really low credit charge-offs.

And so you've got the convergence of a lot of different things. An economy that's softening a bit. Consumers coming back to normal from pre-COVID strength. And a banking landscape, to your point, that is facing new regulation, liquidity, capital regulation, and managing through uncertainty of potentially a credit crisis that could be on the horizon.

So there's a lot of dynamics to face. I would say the resiliency and the strength of the consumer is still really strong despite all of that. And I think there's a chance that the strength of the consumer is really what's going to make the difference in this economy in 2024 to really buoy the US economy to navigate well.

- Brendan, are you a bit, I guess, worried just about some of the recent trends that we are seeing with the consumer? We have seen a pullback in some of the econ data points. We have seen some weakness in the most recent earnings results that we are getting from these consumer discretionary companies. In terms of maybe some of that weakness carrying over us seeing a bigger pullback, I guess, what are you seeing in terms of the odds of that, and what kind of risks that then potentially poses?

BRENDAN COUGHLIN: The economy's not being felt the same across all different segments of the US consumer. Having said that, despite consumer confidence being down a bit this year versus last year, the strength of the consumer is still, on average, higher than what it was pre-COVID. And so the consumer is definitely going through a normalization. So consumers had about 25% more deposits coming off of COVID than they did in 2019. And then their credit charge-offs were about 50% suppressed from where they were pre-COVID.

All of those metrics are kind of normalizing. But here we are today, as we enter 2024, the US consumer still has more deposits per capita in their accounts today than they did in 2019, and their net charge-off rates are still lower than they were in 2019. So net-net, even today, the health of the consumer is still really strong.

We expect that to continue to normalize. I don't see anything right now out the window that would suggest we're heading for anything other than a normalization to pre-COVID levels. We'll see as we manage the uncertainty of the economy. But right now, I'd say the strength of the consumer is still pretty good despite all those factors.