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

KBRA Analytics releases this month’s edition of The Bank Treasury Newsletter, the Bank Treasury Chart Deck, and Bank Talk: The After-Show.

This month’s newsletter, Bank Treasurers Are Thankful For Another Year on the Job, examines some of the consequences of the U.S. Federal Reserve’s decision to begin tapering its monthly investment in Treasury and Agency MBS securities and why interest rates may remain range-bound, as the Fed approaches zero dollars net new purchases by June 2022. The newsletter also examines why the debt ceiling suspension that expires next month is tied into the suppression of short-term rates under one year. Showing the relation between these developments and the latest dynamics surrounding the LIBOR transition, the newsletter reports how treasurers planned to offer SOFR as a benchmark for floating rate loans but are prepared to offer Ameribor and the Bloomberg Short-term Bank Yield (BSBY) based on customer demand.

The general optimism expressed by bank management at smaller regional and community banks during last month’s quarterly calls about the prospects for loan growth next year are also reported in this month’s newsletter. Loan growth is critical to reverse some of the compression that net interest margins have experienced since the pandemic. Bank treasurers surveyed by the newsletter believe that deposit growth will slow down as the Fed tapers. They also expect to see the first hike in the Fed Funds rate by Q1 2023 but that there would be no more than 75 bps of cumulative hikes for Fed Funds, and that the yield on the 10-Year Treasury would not top 2.5% in the next year. This edition also discusses how the yield at which banks are putting bonds on their balance sheets is getting roughly close to the yield of the bonds rolling off, reducing the dilutive effect buying bonds has had on interest-earning asset yields.

The Bank Treasury Chart Deck expands on topics covered in this month’s newsletter and Bank Talk: The After-Show, starting with linking the trickle of new bank charters to the current ultra-low interest rates that have prevailed since the global financial crisis (GFC), and more broadly, to a multi-decade decline in the Fed Funds rate. Citing the 10,000 industrywide branch closures since 2008, the Chart Deck shows why the increased public acceptance of digital banking offers the industry the chance to increase efficiency and cut basis points on operating expenses on average interest-earning assets by closing more branches and cutting occupancy expense. It then looks at how bank treasurers have succeeded in arresting the increase in cash they hold at the Fed as they shift to higher bond investments, but how regardless of these efforts, loans are at a two-decade low as a percentage of interest-earning assets. Given that the industry needs to grow loans if net interest margins are to ever to reverse the downward pressure since the GFC, the deck looks at how the balance of Agency MBS has overtaken the balance of C&I loans on bank balance sheets which, despite reported competitive pressures, yields 5 bps of interest more than Agency MBS banks hold.

This month’s edition of Bank Talk: The After-Show compares the cost of core deposits reported by two digital banks— Ally Bank and Goldman Sachs Bank USA—to an average for large banks of their asset size, and then looks at cost of core deposits for three smaller regional banks. Verabank competes as both a branch-based regional bank in Texas and as a digital-based bank, while Stride Bank and The Bancorp Bank, work with Chime (a nonbank fintech) that uses these two institutions to offer banking services to its digital network. Van questions Ethan about the value of core deposits originated online, but argued that interest rates do not completely explain the relative difference in the success (measured in terms of growth rates for deposits) not only between Ally Bank and Goldman Sachs Bank USA, but also between these two digital banks and traditional banks of their peer size. Ethan explains that according to surveys, Gen-Zers are likely to favor one digital bank over another based on the mobile app. The pair conclude their discussion on how the value proposition for branch-based originated deposits has been cut in half since the GFC because of ultra-low interest rates, and why in such an environment, a digital bank may thrive much better than a bank that relies on traditional branch-based deposit gathering.

Click below to view the reports:

• The Bank Treasury Newsletter Chart Deck: November 2021
• Bank Talk: The After-Show: November 2021
• The Bank Treasury Newsletter: November 2021

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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