KBRA Analytics publishes The Bank Treasury Newsletter, Bank Treasury Chart Deck and Bank Talk


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

This month’s newsletter, Bank Treasurers Get Off for Thanksgiving, discusses two challenges facing bank treasurers, regardless of whether the Federal Reserve has hiked rates now that its target range for the fed funds is 3.75% to 4.00%, with expectations that the central bank will hit the terminal rate. The first is market volatility, which remains heightened. Although in some respects it is not as severe as it was during the Global Financial Crisis (GFC), 9/11 or the first month of the COVID lockdown, it has persisted for a much longer period . Citing a study by the New York Fed that links volatility to market liquidity, and which showed how market depth and price volatility in the Treasury market are as bad as they were in March 2020, the newsletter shows how lately market opinions are changing almost as fast as prices. The bulletin notes the sudden reversal in the spread between 3-month Treasury bills and 10-year bills. Despite worries about liquidity in financial markets, the excess of deposits over loans still stood at $5.6 trillion, which, although down from $6.8 trillion at the end of March 2022, is still $0.2 trillion higher than it was in November of last year.

The second challenge covered is how bank treasurers deal with the requirements of funding a balance sheet, maintaining capital, and operating within liquidity constraints, while adhering to accounting rules that penalize capital for losses on paper 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 banks’ tangible common equity ratios into negative territory. Bank treasurers mostly ignore their concerns because AOCI is not included in regulatory capital, just the capital ratio that the Federal Housing Finance Agency (FHFA) uses as a basis to prevent banks from home loan to lend to members with insufficient capital. Bank treasurers nevertheless say they are aware of the optics of a low or even negative generally accepted accounting principles (GAAP) capital ratio, but are reluctant to increase the composition of held-to-maturity securities.

The Bank Treasury Chart Deck highlights the widening of net interest margins for banks and credit unions this year, placing the positive change in historical context with past Fed rate hike cycles. Moving on to the balance sheet, another set of slides highlights the significant impact that the cumulative Fed rate hikes have had on the fair value of bank bond portfolios, studies the negative change in market value for different categories bond markets and the growing number of banks and credit unions face the risk of negative GAAP capital ratios if rates rise. The last two slides depict the positive and sustained loan growth in the banking system, driven by commercial and industrial loans, as well as the continued outflow of deposits.

Bank Talk this month examines the remarkable and surprising way the public is maintaining the highest ratio of non-interest bearing deposits to total deposits in nearly 40 years, at 28%, more than double than before COVID. Van wonders how bank deposits could drop from $0.5 trillion since the end of 2021 to just under $18 trillion, and the balance wouldn’t come out of checking accounts, but Ethan shows Van some preliminary aggregated data for third quarter 2022 data showing that from the end of 2021 to September 30, 2022, current accounts increased, unlike non-transactional account balances which declined. Then, moving from the perspective of the bank’s balance sheet to his client’s balance sheet, Ethan and Van examine trends in the cash and inventory accounts of some large consumer companies and find that these companies have built up inventory this year, but have also reduced their cash accounts. . This suggests companies are using cash stocks on deposit and are generally bullish on sales.

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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 deliver 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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