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Five pivotal questions for banks in 2018
Banking has been flying in a similar pattern for the last few years, but 2018 is shaping up as perhaps a turning point toward a new course — one that has its pluses and minuses.

The anticipated U.S. tax windfall and handful of rate increases from the Federal Reserve should arm banks with new funds to reward employees and shareholders and allow banks to reinvest in their businesses. It could be a nice offset to still sluggish loan growth, especially on the commercial side.

The earnings season that starts next week will give CEOs a forum to provide more clues about how some of these funds might be used. Yes, banks have announced pay increases for the rank and file and some other things, but they may also increase spending on cybersecurity or mobile upgrades or be able to afford to eat some lingering problem assets.

Yet every gain brings with it a potential downside.

Deposit costs, credit quality and cost-control matters remain determinants of how much money banks make this year. Higher interest rates could force banks to do what they have so far avoided: raise what they pay for deposits. The temptation will be great to keep deposits low and try to fatten margins, but competition for deposits could increase, especially from consumer lenders whose business has been stronger and may need the extra deposits to feed more growth.

Speculation is rampant about loan volume and yields, expenses and efficiency ratios, possible branch closures and how much more might be spent on technology initiatives. And the debate will heat up about how much of a concern credit quality trends are — problem assets remain manageable, but delinquencies in auto loans and credit cards have been a concern for months.

The following questions will loom over the banking industry this year.