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

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 Work Through August, looks at the pressure bank treasurers are under to invest excess deposits in securities, as well as how, despite some hesitancy to invest at historic low yields, they have come to see any bond yield as preferable to earning 15 basis points overnight leaving the money at the Fed. Given the continued inflow of deposits, particularly noninterest bearing deposits, some even see the logic of increasing duration and reducing their asset sensitivity. The newsletter reviews bank data that shows how loans and securities maturing or repricing after 15 years increased as a percent of total assets over the last year, as well as longer-term over the last decade. Still, bank bond portfolios continue to have a duration between three and four years, which has not changed much since the global financial crisis, and bank managers across the country were unanimous last month that loan growth would materialize no later than next year, which could relieve them of pressure to invest at these levels.

The newsletter continues with a comparison of the one-month London Interbank Offered Rate (LIBOR) and the Secured Overnight Financing Rate (SOFR), and how the Fed seems to have completely eliminated the latter’s volatility, which has been one of its hallmarks since its selection by the Alternative Reference Rates Committee (ARRC) in 2017 to replace LIBOR. Bank treasurers have mixed views on the use of alternative credit-sensitive indices, including the Bloomberg Short-Term Bank Yield (BSBY) index and American Interbank Offered Rate (Ameribor). Many plan to use SOFR, seeing the switch as lowering volatility in their net interest margins, which have typically been impacted by gyrations in LIBOR. Generally, the industry is still working on its system needs to support any of these indices for use in lending after the new year.

Against the backdrop of a likely announcement soon by the Fed about tapering quantitative easing, the Bank Treasury Chart Deck focuses on the balance sheets of the Fed, the commercial banks, and the money market funds—the principal holders of Treasury and Agency securities. Comparing the composition of the Fed’s System Open Market Account (SOMA) in summer 2013 to today’s SOMA portfolio, the Chart Deck shows how the Fed holds more Treasurys and less MBS today than then, and it highlights how the Fed’s Treasurys are concentrated in front-end maturities. In addition to money market funds’ participation in the Fed’s reverse repo facility (RRP), Office of Financial Research data shows how those funds have generally stepped up their investment in Treasury reverse repo. Finally, shifting to the commercial banks, the Chart Deck examines the growing concentration banks have in Treasurys, though most of their investment focus continues to be in Agency MBS. The analysis closes with a slide comparing the book yield of the Agency MBS portfolios held by banks, and how it has fallen to a record low.

This month’s edition of Bank Talk: The After-Show has Ethan and Van looking at regional differences in the cost of core deposits and exploring the competitive and balance sheet factors behind them. To aid their analysis, Ethan presents two different scatter plots. One regresses the Q2 2021 cost of core deposits for each of the 50 state averages based on the ratio of loans to deposits. The second regression compared the cost of core deposits to the maturity distribution of time deposits in Q4 2019, finding some positive correlation, as well. Broadly, Ethan and Van also discuss how the surge of deposits into the banking system has reduced the correlations in these regressions.

Click below to view the reports:

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

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