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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 Pay Their Taxes, reviews the state of bank deposit franchises in the wake of the historic bank failures last month, deposit outflows, and the rising short-term interest rate environment. The newsletter notes that deposit repricing beta is mostly moving as bank treasurers expected. Nevertheless, the suddenness of the deposit outflows at the failed banks leaves bank treasurers jittery and uncertain how to address their asset-liability management responsibilities as the Federal Reserve's rate-hiking cycle appears to be coming to an end. Bank treasurers would traditionally around this time extend duration in their bond portfolios for higher yielding securities to help sustain net interest margins and support potentially higher credit losses when rates fall, but they expect to be under pressure from regulators instead to shorten up their bond portfolios and model their deposits as shorter tenures than they believe they are. They are also mindful of the intense competition for deposits at a time when short-term rates are at or over 5% and the ease of transferring cash from bank to bank or bank to money fund has never been so tempting, or so quick and easy.

Bank managers reporting this month noted how their consumer deposits mostly remain sticky and stable. They expect shifts by depositors from noninterest to interest-bearing deposits to slow this year, which remain at historically high levels, based on FDIC data that shows noninterest deposits equal to 27% of total deposits, down just 3 points from a 40-year peak at the end of Q4 2021. The FDIC also projected it would lose $3.3 billion in the liquidation of Silicon Valley Bank and Signature Bank's bond portfolios, which it is in the process of selling. As a consequence, banks will likely absorb an additional assessment to be determined on top of the additional 2-basis point assessment added to their insurance premium bill to help bring the Deposit Insurance Fund up to its statutorily mandated 1.35% of insured deposits. Although much remains uncertain as to how regulators will respond to the bank failures, many bank managers expect that the accounting rules for the investment portfolio and the treatment of fair value in regulatory capital and liquidity rules will be tightened.

The Bank Treasury Newsletter Chart Deck starts off this month by tracing the gap between loans and deposits, and how this gap, even though it narrowed by $2 trillion since it peaked over $7 trillion in 2021, remains historically high. Even when bank bond portfolios are combined with loans and compared to deposits, the industry has never been stronger, liquidity-wise, in over 40 years. Of course, this analysis does not exclude uninsured deposits, which increased in proportion to insured deposits over the past decade, even taking into consideration pledged securities. Other slides in the deck highlight the relatively strong liquidity of bank balance sheets, even though the mix of loans has sharply increased in the last year, and how Treasurys make up the largest percentage of bank bond portfolios than they have since the global financial crisis. The last slides in the deck survey the rising trend in the balance the public holds in money market funds and the relatively tepid response of the industry to the Fed's new Bank Term Funding Program given its generous terms.

Bank Talk covers multiple topics this month in the wake of March's bank failures, including an analysis of uninsured deposits when adjusted for pledged securities and how the number of insured deposit accounts in the banking system is more than 100x the size of the uninsured accounts. Ethan and Van then shift to discussing media reports that regulators reportedly sanctioned Silicon Valley Bank before it failed, and review a list of actions they can take and what they mean, including Matters Requiring Attention, Matters Requiring Immediate Attention, written agreements, and cease and desist orders. The duo conclude by discussing the nascent Bank Term Funding Program, an emergency liquidity facility the Fed launched on March 12 to provide liquidity to banks that need it without having to sell underwater bonds from their investment portfolio at a loss.

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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 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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