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 Ring in the New Year, covers how bank treasurers are confident that their balance sheets are positioned for higher interest rates given the Fed’s hawkish turn in Q4 2021, which could not be better news for them and their efforts to forestall further net interest margin compression. Their confidence assumes that the inflow of bank deposits since COVID will be much stickier and much more stable as core funding than deposit inflows during previous rate cycles. In this context, a range of explanations is reviewed for why banks are reporting that their deposit account balances held by businesses and consumers are uniformly higher than before COVID. Theories include the effect on consumer spending during COVID, higher wages, and higher returns on business inventory from inflation.

The newsletter also outlines the shape of bank treasury balance sheet strategy in the new year, noting that the industry’s loan portfolio currently accounts for only 59% of total deposits, the lowest level for this ratio in almost 50 years. For the 41% of deposits not funding loans, bank treasurers remain inclined to put the money in cash or bonds. Yet, despite efforts by bank treasurers to reinvest cash flows and even increase bond holdings, the balance of cash on bank balance sheets grew by nearly $1 trillion in the last 12 months, compared to $800 billion for bonds. In addition, as of the beginning of December 2021, the balance of cash equaled $4.2 trillion, almost equal to the industry’s $4.5 trillion in bonds. In 2022, bank treasurers will increase their shift to securities if only to keep up with the tide of cash continuing to amass on their balance sheets. Beyond these two options, the newsletter turns to the outlook for lending to find bank management optimistic that loan growth will materialize in 2022, and likewise confident that credit quality in the loan portfolio will remain strong for the foreseeable future.

The Bank Treasury Chart Deck drills down into the latest quarterly data to show how the current expected credit loss (CECL) standard, which drove the banking industry to report significant net losses in 2020, drove it to the third best quarterly net income number in its history, thanks to negative credit provisions taken to reverse provisions in 2020 as the economic outlook brightened. The positive effect of the December 2017 federal tax cut is also highlighted in this month’s chart deck. Shifting focus to the capital markets, the revolution in market information access is explored, with the buy-side in a dominant position versus the sell-side. The chart deck also looks at the surge in common and preferred equity issuance, as well as the growing stockpile of dry powder that private equity has amassed to invest in direct lending.

In this month’s edition of Bank Talk: The After-Show, Ethan goes through his outlook on 2022 with Van, explaining why he is bullish on both the economy and markets. Ethan compares the COVID fiscal stimulus to the money the U.S. government spent on World War II, pointing to the post-war boom that ensued for a quarter-century as a sign of the economy to come. He assures Van that once the virus is passed, supply-driven inflation pressures will, too. The two then review how a comparison of the spread between 3-month/2-year Treasuries and 2-year/10-year Treasuries shows that the fixed income markets remain confident that inflation will be contained by the Fed and not pose a long-term chronic problem.

Click below to view the reports:

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

View source version on businesswire.com: https://www.businesswire.com/news/home/20211221005505/en/