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 Reconsider Asteroid Insurance, reviews the critical steps the Federal Reserve, FDIC, and U.S. Treasury have taken to stabilize financial markets and reassure depositors in the wake of the bank failures this month. Delving into the new Bank Term Funding Program (BTFP), the newsletter compares it to other Fed liquidity programs, including the discount window and the standing repo facility (SRF). The piece notes that even though the rate charged for borrowing through the BTFP is favorable compared to the discount window or the SRF, especially since the Fed will lend at par value of the collateral, bank usage of the window soared to $153 billion from $4 billion in the second week of March, while by comparison, the balance of the BTFP was just $12 billion.

Public policy issues are also weighed in this month’s edition of the newsletter, including quantitative easing and how it contributed to the accumulated other comprehensive income (AOCI) problems currently bedeviling bank treasurers. In addition, the conflict in public policy favoring privately held, publicly traded banks over government-owned banks is examined as another root cause of present industry turmoil. Finally, some of the regulatory and accounting rules are discussed as possible responses to the role of interest rate and liquidity risk this month in causing sizable institutions with total assets in excess of $100 billion to fail.

The Bank Treasury Newsletter Chart Deck starts by looking at the spread between the Secured Overnight Financing Rate (SOFR) and the effective fed funds rate (EFFR), and how these rates reflect the supply of the reserves and activity in the repo market. Showing how the Federal Home Loan Banks (FHLB) play a limited role in both markets, the report shifts to examining why advances became such an attractive funding tool for bank treasurers last year facing both higher competition for deposits and a surge in lending. The last slides examine the current pace of quantitative tightening and how banks without loans to fund have let their mortgage-backed securities (MBS) portfolios run off and used proceeds to investment in Treasurys.

In Bank Talk, Ethan and Van discuss the plumbing behind SOFR and how it connects to the rate the Fed pays on its reverse repo (RRP) facility. Even though both rates are overnight, secured, and risk free, Ethan shows Van how there has been a spread between the two rates that has varied over time, and how this spread may tell investors about the state of liquidity in short-term markets. Among the factors influencing the spread, the duo looked at Treasury bill issuance, quantitative tightening, FHLB advances, and market sentiment regarding future Fed rate actions.

Click below to view the reports:

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