NEW YORK--(BUSINESS WIRE)--Kroll Bond Rating Agency (KBRA) 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 Try to Be Thankful, reviews the state of bank deposits, how bank treasurers explain that deposit growth has remained surprisingly strong thanks to the Fed’s ongoing quantitative easing and to businesses and consumers stockpiling cash in deposit accounts in uncertain times in the face of a global pandemic. This trend has helped reduce funding costs, although it has not been sufficient to offset the effect of ultra-low reinvestment rates on net interest income growth.
Additionally, the newsletter reviews the current state of preparations for the transition from LIBOR to the new Secured Overnight Financing Rate (SOFR), including the mandatory switchover by the Chicago Mercantile Exchange last month from Effective Federal Funds Rate to SOFR discounting for swaps traded on its exchange. While banks continue to study SOFR’s utility for bank lending, other alternatives such as Ameribor have emerged. As for the switch in accounting this year, from incurred loss method to CECL, bank data indicate that reserve building for COVID leveled off in Q3 2020 and continues to hold at around 1.9%-2.6% of reserves to total loans.
The Bank Treasury Chart Deck continues with research into the public’s growing acceptance of mobile banking, which accelerated with COVID, but was already headed in that direction in the last few years. This trend has manifested itself beginning with a review of the Fed’s payment studies it conducts every three years as far back as 2003, and just released for a study completed in 2018, which show that even cash usage has been falling, which has hurt the ATM industry. Indeed, although card use in the U.S. has long dominated over cash as a method of payment, the U.S. is behind other countries where digital payments dominate all other forms of payment including credit and debit cards. However, later slides in the deck show that despite the fraction of payments conducted in cash in the U.S., physical currency in circulation is increasing rapidly, exceeding $2 trillion, nearly half of which is held overseas.
In this month’s edition of Bank Talk: The After-Show, Ethan updates Van on the newly finalized Net Stable Funding Ratio (NSFR), which is one of two liquidity ratios required under Basel 3, the other one being the Liquidity Coverage Ratio (LCR). Since the draft proposal for the NSFR was published in May 2016 until it was finalized this month, the scope for both the NSFR and the LCR was recalibrated and narrowed to include only two dozen of the largest institutions. Van discusses with Ethan the pros and cons of specifying thresholds for liquidity and whether those thresholds may lead to the liquidity problems they were meant to prevent, when money markets panicked and the Fed had to step in with the Money Market Mutual Fund Liquidity Facility backstop.
Click below to view the reports:
- The Bank Treasury Newsletter Chart Deck: November 2020
- Bank Talk: The After-Show: November 2020
- The Bank Treasury Newsletter: November 2020
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KBRA is a full-service credit rating agency registered with the U.S. Securities and Exchange Commission as an NRSRO. In addition, KBRA is designated as a designated rating organization by the Ontario Securities Commission for issuers of asset-backed securities to file a short form prospectus or shelf prospectus. KBRA is also recognized by the National Association of Insurance Commissioners as a Credit Rating Provider and is a certified Credit Rating Agency (CRA) with the European Securities and Markets Authority (ESMA). Kroll Bond Rating Agency Europe Limited is registered with ESMA as a CRA. Kroll Bond Rating Agency Europe Limited is located at 6-8 College Green, Dublin 2, Ireland.
