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

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

This month’s newsletter discusses the reported $370 billion decline in bank deposits in the second quarter of 2022, which has sparked concern in financial circles that the banking sector faces an impending shortage of deposits, to explain how most of the change was due to tax payments last April, and that the rest is attributable to management’s continued efforts to reduce excess deposits. Regardless of the efficiencies achieved, the industry continues to face a glut of cash. An example of the distorting effect of this glut on markets and the economy is the short-term money market, where the guaranteed overnight funding rate (SOFR) continues to move through the Fed rate. on its repo facility. This also manifests in deposit revaluation betas, as bankers continue to observe that these betas are lower than expected. This may be partly due to a structural shift in deposit behavior towards maintaining higher deposits, shaken by the global financial crisis (GFC) and then COVID.

As the Fed’s quantitative tightening kicks into high gear this fall, the newsletter discusses management’s optimism that deposits should hold steady and rise over time, regardless of the forecast decline in Q2 2022. he article also examines the strong loan growth this year and why banks expect it to remain high for some time. Given that there are $7.5 trillion in deposits in excess of loans, bank treasurers are focused on deploying liquidity, whether in the form of loans or bonds. Expecting the Fed to eventually reverse course and lower rates, many banks have stepped up their on- and off-balance sheet efforts to reduce the sensitivity of on-balance sheet assets and protect net interest margin.

The Bank Treasury Chart Deck examines how the sharp drop in bond prices and the negative cumulative other comprehensive income of banks that followed in the second quarter of 2022 could have prompted them to shift more of their bond portfolios to accounts. held to maturity, and this could also be linked to a sharp increase in their pre-borrowing. Highlighting the importance of the change in advance balances in the second quarter, the game compares the current spike in advances to other prior spikes, such as during 9/11, GFC, and COVID. Despite the surge in advances, they still represent a decreasing percentage of bank liabilities, and the last slide shows that the sector is still swimming in deposits and does not yet have a fundamental need to tap into its non-deposit sources for funding. additional.

After introducing a name change for their show, Ethan and Van look at the latest trend in credit reserves for regional banks that have adopted the new current Expected Credit Loss (CECL) accounting that has replaced the incurred loss model ( ILM) in 2020 just before the pandemic. The report examines why the latest figures show banks’ reserves shrinking in proportion to their loan portfolios at the exact time analysts expect banks’ provisioning spending to rise amid rising recession risks next year . The duo also compare CECL to ILM, including the former’s greater reliance on models and management judgment, which Ethan says results in credit reserve balances that aren’t more transparent than they are. were not under ILM. Before concluding, Ethan and Van review the history of bank provisions and net write-offs around the GFC and, before that, during the commercial real estate loan crisis of the late 1980s and early 1990s.

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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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