• Fri. Dec 1st, 2023

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KBRA Analytics Releases The Bank Treasury Newsletter, the Bank Treasury Chart Deck, and Bank Talk

NEW YORK–(BUSINESS WIRE)–KBRA Analytics releases this month’s edition of The Bank Treasury Newsletter, the Bank Treasury Chart Deck, and Bank Talk.

This month’s newsletter, Bank Treasurers Get Off for Thanksgiving, discusses two challenges bank treasurers face regardless of how much higher the Federal Reserve will lead rates now that its target range for the fed funds rate is 3.75%-4.00%, with expectations building that the central bank is reaching the terminal rate. The first is market volatility which remains heightened. Although in some respects it is not as bad as it was during the global financial crisis (GFC), 9/11, or the first month of COVID lockdowns, it has persisted for a much longer period. Citing a New York Fed study that ties volatility to market liquidity, and that showed how the depth of the market and price volatility in the Treasury market is as bad as it was in March 2020, the newsletter shows how lately, market opinions are shifting almost as quickly as prices. The newsletter notes the sudden inversion in the spread between 3-Month T-bills and 10-year notes. Despite concerns about liquidity in financial markets, excess deposits over loans still equaled $5.6 trillion, which, while down from $6.8 trillion at the end of March 2022, is still $0.2 trillion higher than it was in November last year.

The second challenge covered is how bank treasurers face the demands of funding a balance sheet, maintaining capital, and operating within liquidity constraints, while still adhering to accounting rules that penalize capital for paper losses in the bond book on the left side of the balance sheet but prohibit a balancing mark on the deposits on the right side of the balance sheet that fund it. Negative accumulated other comprehensive income (AOCI) reached 10% of total available-for-sale securities last quarter, and further decline threatens to turn many bank tangible common equity ratios negative. Bank treasurers mostly shrug off concern since AOCI is not included in regulatory capital, just the capital ratio the Federal Housing Finance Agency (FHFA) uses as a basis to encumber home loan banks from lending to members with deficient capital. Bank treasurers say they are nevertheless mindful of the optics of a low or even a negative Generally Accepted Accounting Principles (GAAP)-based capital ratio, but are reluctant to increase the mix of held-to-maturity securities.

The Bank Treasury Chart Deck highlights the widening of bank and credit union net interest margins this year, putting the positive change in historical context with earlier rate-hiking cycles by the Fed. Shifting to the balance sheet, another set of slides highlights the significant hit the Fed’s cumulative rate hikes have had on the fair value of bank bond portfolios, study the negative mark-to-market change for different classes of bonds, and count the growing number of banks and credit unions facing the risk of negative GAAP-based capital ratios if rates go higher. The last two slides outline the sustained positive loan growth in the banking system driven by commercial and industrial lending, as well as the continued outflow of deposits.

Bank Talk this month looks at the remarkable and surprising way that the public maintains the highest ratio of noninterest-bearing deposits to total deposits in nearly 40 years, at 28%, more than double where it was before COVID. Van questions how bank deposits could fall $0.5 trillion since year-end 2021 to just under $18 trillion, and the balance would not come out of checking accounts, but Ethan shows Van preliminary aggregate data for Q3 2022 data showing that from year-end 2021 to September 30, 2022, demand deposit accounts increased, in contrast to non-transaction account balances, which fell. Then, shifting from the perspective of the bank’s balance sheet to its customer’s balance sheet, Ethan and Van look at trends in cash and inventory accounts of some leading consumer businesses and find that these companies were building inventories this year, but also reducing their cash accounts. This suggests that businesses are working through stockpiles of cash on deposit and are generally optimistic for sales.

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 across each product provide unparalleled insight creating a foundation of deeper analysis and rapid discovery for users. KBRA Analytics is an affiliate of Kroll Bond Rating Agency, LLC (KBRA). KBRA is a full-service credit rating agency registered in the U.S., designated to provide structured finance ratings in Canada, and with credit rating affiliates registered in the EU and UK.


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