KBRA Analytics Releases The Bank Treasury Newsletter, the Bank Treasury Chart Deck, and Bank Talk: The After-Show

NEW YORK--(BUSINESS WIRE)--KBRA Analytics 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 Get Paid in Nominal Dollars, takes a long-term view of bank lending in the U.S. since the early 1970s to show that the industry has struggled to grow loans for decades before the disruptions caused by COVID. The industry’s inability to improve loan growth hampers its ability to absorb deposit inflows that have put pressure on its net interest margins (NIM). The newsletter then connects this challenge to the current surge in bank deposits, as well as examines why bank treasurers are buying bonds at historically low interest rates and implementing other balance sheet strategies to lengthen the duration of their interest-earning assets. Bank treasurers also use these strategies to counter the lengthening duration of their interest-bearing liabilities as deposits prove stickier than they originally expected.

In addition, the newsletter assesses the relative value bank treasurers consider as they execute their ongoing strategy to shift cash into bonds. Banks report they are opting to add bonds, which are currently yielding about 150 basis points, over the interest paid by the Fed on excess reserves, so new purchases are not as likely to dilute the book yield of bond portfolios. This compares to the trend of diluted book yields over the last year, when the investment portfolio’s book yield fell to 1.4% in Q2 2021 from 1.9% in Q2 2020, according to the Federal Deposit Insurance Corporation (FDIC). The newsletter ties the bond portfolio book yield decline to the downward pressure on bank NIMs as securities and cash increase in relative proportion to higher-yielding loans. This correlation shows how despite efforts to shift cash into bonds, more cash keeps piling up and adding to the pressure. While bank managers project optimism that loan growth is on the verge of rebounding, which would help reverse pressure on earnings, the newsletter concludes by looking at the state of mergers and acquisitions and how a large number of bankers have become motivated sellers to larger acquirers.

The Bank Treasury Chart Deck first looks at how the growth in bank deposits across the size spectrum has changed the structure of the liability side of bank balance sheets to small from large institutions. For example, among FDIC-defined community banks, equity and deposits now fund the highest percent of the balance sheet in 25 years, while larger banks have much less reliance on non-deposit funding. The Chart Deck also evaluates the geographic distribution of bank deposit growth, highlighting that while New York and California still lead the nation in the share of total deposits, Texas is now a close rival, based on the FDIC’s latest deposit data.

Shifting focus, the Chart Deck’s next slides look at certain changes the industry has made on the asset side of the balance sheet to offset the lengthening duration of its liabilities as deposits prove stickier than was assumed. For example, some of the largest banks added duration in their bond portfolios, and they shielded their regulatory capital accounts from other comprehensive income risk by booking bonds in held-to-maturity accounts. The final slides in the deck examine the split between funded loans and unfunded loan commitments, and why history suggests funded loans could be on the verge of an increase.

This month’s edition of Bank Talk: The After-Show deals with the competitive effect of credit unions on bank deposit costs, comparing the number of their state charters and their cost of deposits in Q2 2021. The article also shows how the surge in deposits at both banks and credit unions since the onset of the pandemic narrowed differences in their deposit costs, as both slashed rates as quickly as they could after the Fed cut rates to 0%. Van introduces a guest on the After-Show named Bob, who discusses anecdotal reports of credit unions acting more competitively with banks than ever before as both intensify their hunt for loans. Ethan, Van, and Bob then review data from call reports and the National Credit Union Administration showing how deposit expense differences between banks and credit unions vary by state and region, as well as how the ratio of loans to deposits no longer has the same correlation with deposit costs, as was the case before COVID.

Click below to view the reports:

• The Bank Treasury Newsletter Chart Deck: September 2021
• Bank Talk: The After-Show: September 2021
• The Bank Treasury Newsletter: September 2021

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.