How does corporate banking fare in a recession, is it inversely correlated?
Since the nature of corporate banking is to provide lending services to companies, does that mean that corporate banking is counter cyclical?
If I look at it from the most basic angle it would seem like an economic downturn coupled with rising interest rates would lead to a huge boom in corporate banking fees while our M&A services might be needed less, it seems like our debt services might be needed more.
Is there something I'm missing? I feel like my rational is too basic.
I'm sure a recession is bad for everyone and if it is bad for corporate banking can you explain how?
Companies don't borrow when cost of debt is high and when they're not sure to be able to repay due to economic conditions
And, in return, the banks might be more risk averse to lending and have to be more selective on their borrowers to make sure they can pay higher interest rates/weather the recession.
No, but they will have to borrow to stay afloat, and may need to have the loan restructured if the company is financially underwater.
During booms, they would borrow for investment purposes or to purchase companies.
TLDR: corporate banking isn’t counter cyclical but is just more stable relative to some other parts of finance.
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