Community bankers optimistic despite concerns over war, Fed monetary policy

Community bankers remain optimistic despite weakening outlooks on monetary policy and regulation, according to the first quarter 2026 community bank sentiment index. .Released April 7 by the Conference of State Bank Supervisors, the index dropped one point to 131, only two points from its record six months ago. Any reading higher than 100 signals optimism for the coming year. The indexes tracking profitability, operations expansion and franchise value all increased, remaining well into positive territory. The monetary policy and regulatory burden indexes fell 13 points and eight points to 122, respectively. The index tracking uncertainty increased to 31 amid concerns over how the Iran War could impact the U.S. economy through higher oil prices and increased chances of a recession, along with the potential impact of the Federal Reserve monetary policy. The war in Iran and its corresponding energy infrastructure attacks and disruptions to the Strait of Hormuz has frequently caused oil prices to spike to higher than $100 a barrel. Some reports have suggested a nearly 50 percent risk of a recession due to increased economic uncertainty and the rise in oil prices. Community bankers also expressed concern over the potential for deposit flight caused by the GENIUS Act and the chances of insufficient check fraud controls by the largest financial institutions due to rules limiting the liability of depositing banks. “While bankers have greater uncertainty about national economic conditions, mainly due to potential impacts from the Iran war, they remain optimistic that their loan portfolios in their local economies will lead to higher profitability and franchise values,” said CSBS Chief Economist Tom Siems. The survey included more than 250 community bankers in 42 states.