KBRA Analytics publishes The Bank Treasury Newsletter, the Bank Treasury Chart Deck and Bank Talk: The After-Show

NEW YORK–(BUSINESS WIRE)–KBRA Analytics publishes this month’s edition of The Bank Treasury Newsletter, Bank Treasury Chart Deck and Bank Talk: The After-Show.

This month’s newsletter reports on banks’ treasury strategy to manage current interest rate volatility and protect capital from mark-to-market accounting by booking bonds in held-to-maturity accounts (HTM) instead of available for sale (AFS). Although some bank treasurers reject accounting (with the exception of the largest banks, which must include unrealized gains and losses in regulatory capital), most institutions are concerned enough that some hold until the end. half of their bond portfolios locked in HTM, which does not permit the sale of securities for routine asset-liability management activities, including to realize gains or for liquidity purposes. Accumulated other comprehensive income (AOCI) plunged to minus 8% of the industry’s Tier 1 leverage capital, lower than it had dropped even in the fourth quarter of 2008.

Disregarding imbalanced accounting, the newsletter reports how non-maturity deposits have increased significantly in the composition of total balance sheet funding, representing 70% in the first quarter of 2022 compared to 42% in the fourth quarter of 2008. The article also assesses how future bank earnings should benefit from the Fed’s hawkish turn, provided it does not send the economy into a deep recession leading to credit losses. Citing senior bank officials speaking to analysts this month, the bulletin discusses the sector’s overall optimism for the economy. This is a perspective that has seeped into credit reserves and helps to explain why large public banks, following current Expected Credit Loss (CECL) standards, have aggressively reduced their credit allocation. to 1.5% by the end of the first quarter of 2022, compared to 2.6% of total loans at the height. pandemic closures in 2020.

The Bank Treasury Chart Deck opens by highlighting the sharp increase in loan growth that has reduced excess deposits in the system from $500 billion to $6.9 trillion – a surplus that is still twice as much important than before COVID. The chart set then moves on to show how the increased mix of core deposit funding combined with the previous 0% rate regime led banks to reduce their reliance on wholesale funding sources, including advances and brokered deposits from Federal Home Loan Banks (FHLB). It has also increased the sensitivity of balance sheet assets, positioning the industry to take advantage of the current rate hike regime. The bridge later shows how the expansion of the Fed’s overnight reverse repo facility (RRP) to $2.3 trillion, coupled with the increase in the rate paid for the RRP to 1.55% from 0.80%, increased the supply of liquidity in the overnight repo market and sent the Secured Overnight Funding Rate (SOFR) down to 1.45%. Another slide shows the Treasury General Account, which is a factor behind bank reserves which currently stand at $3.3 trillion. The chart game ends by looking at the 2s-10s Treasury spread, which has narrowed to less than 10 basis points (bps) since the Fed’s 75 bp hike this month.

In Bank Talk: The After-Show, while quantitative tightening (QT) is underway, Van Hesser and Ethan Heisler assess the potential impact on bank deposit levels. Ethan explains that deposits have not only grown over the past quarter, but they have also not been materially affected by the sharp reduction in Fed reserves that has already taken place since the new year. Looking at state-by-state trends, Ethan and Van explain why Texas regional/community banks lead the nation in deposit growth, and also how strong deposit growth is a national phenomenon. Offering more statistics, the duo observe that regional/community banks recorded 10% growth in deposits from June 30, 2021 to March 31, which is roughly equivalent to the growth noted by large national banking franchises.

Click below to view the reports:

About KBRA Analytics

KBRA Analytics, LLC (KBRA Analytics) is our premier product platform for high-quality data and advanced analytics. Our seasoned teams of industry specialists for each product provide unparalleled insights creating a foundation for deeper analysis and rapid discovery for users. KBRA Analytics is a subsidiary of Kroll Bond Rating Agency, LLC (KBRA). KBRA is a full-service credit rating agency registered in the United States, appointed to provide structured finance ratings in Canada, and with affiliated credit rating companies registered in the EU and the UK.

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