The ratings agency Fitch is giving the U.S. banking industry a vote of confidence, calling the outlook “relatively stable”.

Banks have demonstrated the ability to weather the current period of economic sluggishness, says Fitch, however the slowing economy has begun to erode some of their financial flexibility. “A drop off in consumer confidence and consumer economic activity combined with a continued worsening in the corporate sector could result in our rating outlook for the industry becoming more negative,” according to Fitch’s U.S. Banking Quarterly.

Despite numerous interest rate cuts and a strong consumer market, the U.S. economy continues to stall and it looks as if the downturn will last longer than anticipated, Fitch says. “Large corporate borrowers continue to run into problems and the slowing economy is beginning to have a greater impact on middle market borrowers as well,” it notes.

“While we expect credit deterioration to worsen, we believe that the level of deterioration will remain manageable for the most part, absent any significant additional economic weakness,” said Fitch analyst Ken Ritz. “Many of the banks have beefed up their reserve position in order to absorb additional losses for a more protracted downturn”‘

While Fitch does not envision a specific industry or region to emerge as a focus for concern, asset quality indicators will be centered in highly leveraged transactions that have not been able to withstand the multiple quarters of economic weakness.