08:56 AM EDT, 09/18/2024 (MT Newswires) -- The US Federal Reserve's expected easing in monetary policy via a reduction in the federal funds rate is likely to have a "positive" effect on the banking industry, RBC Capital Markets said in a note Wednesday.

The interest cut will reduce the recession probability that is looming for next year, resulting in "more resilient credit quality," RBC analysts said.

The note also said banks ideally need to position their balance sheet to be liability sensitive as the Federal Reserve implements an interest rate cutting cycle.

In a liability sensitive balance sheet, institutions' liabilities reprice more quickly than their assets, RBC said. In that scenario, net interest margin and net interest income rise when rates are cut.

The investment firm said the top 20 banks "should see stronger NIM and NII growth while at the same time not having the benefits of monetary easing offset by increased credit deterioration."

"Barring an unexpected recession in the next 3-6 months, the upcoming easing cycle will be executed while the economy is still growing, rather than being in a deep recession or financial calamity," the RBC analysts added.