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

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 Really Miss Their Car’s Windshield Navigation Display, starts by highlighting the general sense of optimism among bank managers for the industry’s year ahead with more than a month down into the first quarter, as well as how this optimism is keyed on their assessment of the strength of their borrowers’ balance sheets and the resilience of the consumer thanks to near full employment. These expectations lead them to predict that loans, which have already increased $1.1 trillion since the Federal Reserve’s first interest rate hike last March, will continue to grow this year. This expectation is still assuming an economic slowdown or mild recession, a scenario that some do not even think will happen this year.

Given bank treasurers' expectations for loan growth, the newsletter also reviews the menu of options they are using to fund cash outflows, which, between loans and deposits since the first hike, total $1.7 trillion. With bond portfolios generally underwater and thus immediately illiquid, the menu includes a still sizable balance of cash assets, which is still $0.5 trillion higher than it was before the pandemic. In addition to cash, bank treasurers have raised $0.5 trillion in funding from Federal Home Loan Bank (FHLB) advances, brokered certificates of deposit (CD), and, to a much lesser degree, reciprocal deposits—and they can increase borrowings in all three if needed. Bond paydowns and maturations scheduled this year and next will also contribute to the funding mix. The newsletter also discusses how bank treasurers are sharpening their pricing analysis for both loans and deposits as higher rates have raised their cost of funding and required minimum returns.

The Bank Treasury Newsletter Chart Deck begins with an examination of month-over-month loan growth across several loan categories, demonstrating the contrast between loans at Fed H.8-defined large and small banks, especially in the real estate space. Highlighting how cash dispensed for new loans put most of the upward pressure on the industry’s loan-to-deposit ratios rather than from deposit outflows, the next slides track deposit outflows to retail money market funds, which partially offset flows in the rest of M2. In addition to showing how bank treasurers drew down on FHLB advances and let securities run off to fund loan and deposit outflows, the final slides compare money and banking flows and changes in net interest margin in the 2004-06 and 2015-18 interest rate hiking cycles versus the present hiking cycle.

In Bank Talk, Van and Ethan dive into loan growth, how it has persisted since the Fed began to raise rates last March, and how it is a proxy for lender and borrower sentiment about the economy in 2023. Ethan shows Van an analysis of commercial and industrial and commercial real estate loans that suggests slower flatter loan growth is ahead this year, even if it does not turn negative. In addition, they discuss other indicators of borrower demand and lender supply of credit, echoing the conclusion that loan growth might continue to chug along this year, but at a slower pace than in 2022.

Click below to view the reports:

• The Bank Treasury Newsletter Chart Deck: February 2023
• Bank Talk: February 2023
• The Bank Treasury Newsletter: February 2023

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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