NEW YORK–(BUSINESS WIRE)–#KBRA–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 finds bank managers optimistic for the economy and for the health of their balance sheets, expecting low-cost deposit funding to remain plentiful and to profit from lower deposit repricing betas compared to the last rate cycle. They are confident about the stickiness of their deposit funding, even with the Fed’s quantitative tightening (QT) on tap this year. Reviewing the accounting mechanics behind QT, the newsletter shows why the Fed’s $2 trillion reverse repo and standing repo facilities complicate projections regarding the level of reserves the central bank plans to leave in the system after it finishes shrinking its balance sheet. Moreover, the Fed’s new hawkishness, raging inflation, and worries about a recession have roiled the rates market and shaken the front end of the yield curve. The volatility has widened the basis between LIBOR and the new alternative benchmarks designed to replace it—including the Secured Overnight Financing Rate (SOFR), Bloomberg Short-Term Bank Yield (BSBY), and Ameribor—and the piece discusses why nuances in how these indices calculate the term structure have come to matter.
Rising rates have refocused the market’s attention on bank securities portfolios. The newsletter shows how banks across the size spectrum are moving their portfolio mix to held-to-maturity (HTM) to protect either their regulatory capital or their book equity from mark-to-market losses, or both. Bank managers told analysts that they plan to move even more into HTM this year, even as they buy generally short-term securities and have not extended duration to pick up yield. Recounting the more than quarter-century history behind mark-to-market accounting in the securities portfolio and how changing bank regulatory capital rules have played a role in the industry’s use of HTM, the newsletter highlights a recent change in hedge accounting rules that could lead banks to shift their portfolios back to available-for-sale.
The Bank Treasury Chart Deck first explores restaurant dining and airplane travel to compare two signs of an uneven recovery in the economy as the public seeks to move on from COVID. During the last two years, investment in Bitcoin and cryptocurrencies soared, and the piece examines spending by the financial industry and venture capital in blockchain technology. It shifts to contrast analyst expectations for the banking industry in 2022 with its recent performance since the March Federal Open Market Committee meeting. The chart deck closes by highlighting key trends in the securities portfolio, from a sharp increase in securities carried in HTM and holdings of Treasurys, to a lower concentration in Munis.
This month’s Bank Talk: The After-Show deep dives into the world of cryptocurrencies to look at its application to deposits and the payment system. Ethan and Van start by the discussing how to classify money and how a stablecoin such as Tether is different from Bitcoin. The duo then delves into some of the advantages and disadvantages of stablecoins and how they figure into the Fed’s ongoing study to possibly launch its own central bank digital currency. From there, Van questions whether cryptocurrencies can represent a serious competitive challenge to banks. Ethan explains some of the challenges involved in launching a new crypto and why lack of knowledge has been the biggest impediment to widening public acceptance. Van questions Ethan on certain technical aspects of tokenization, and they finish by looking at some of the features in a deposit token.
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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.
Ethan M. Heisler, CFA
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