U.S. banks are poised for 'record level' earnings in 2021, says IIF

U.S. banks are likely to report "record level" earnings in 2021 as the American economy recovers and financial markets remain buoyant, according to the Institute of International Finance, an industry association.

Tim Adams, chief executive of the IIF, said Friday that the improving economy will help bank lending and fee income to pick up while more investing activity will boost trading revenue.

"I think we're going to see record-level earnings this year so it's a good year for banks. We see it in the bank stocks, and I think it'll continue to reflect those underlying, really strong fundamentals for at least the rest of this year," Adams told CNBC's "Street Signs Asia."

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Bank stocks in the U.S. have climbed higher this year. Among the big banks, shares of Goldman Sachs have jumped 40.8% so far this year as of Thursday's close, while Bank of America and JPMorgan have gained around 40.4% and 29.3%, respectively.   

Many of the big U.S. banks last month reported first-quarter earnings that exceeded analysts' expectations on several financial metrics.    

Fed to 'run this economy hot'  

The improved performance of banks comes as the U.S. economy recovers from the Covid-19 pandemic slump. The recovery spurred worries among investors that a quicker rise in inflation could prompt the Federal Reserve to tighten monetary policy sooner than it had hoped to.

The U.S. consumer price index rose 4.2% in April from a year ago — the sharpest increase since 2008.

Adams said it's time the Federal Reserve starts talking about the possibility of tapering monetary policy. But there's been little indication that Fed Chair Jerome Powell would do that soon, he added.

"I think they're going to run this economy hot. I think they're going to run it hot for a very long time and they're going to wait and see inflation and how sustained inflationary pressures are rather than just transitory, which is what we're seeing now," said Adams.

The Fed had previously said that any jump in inflation would be temporary, given that it's compared against last year's pandemic-hit economy. The central bank also indicated that it would keep monetary policy loose.

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