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 Ask Where Did My Deposits Go?, does a deep dive into the currents and subcurrents taking place in the bank deposit space across the industry, comparing trends for both the largest and smallest institutions, as well as broad regional trends, both inter and intra. For example, regional and community banks in states such as Texas increased deposits, while their peers by total assets in states such as New York, lost deposits in Q2 2022 and Q3 2022. Noting that the banking industry’s total deposits fell between $0.4 trillion to $0.6 trillion since the Federal Reserve began to hike rates, the newsletter considers several possible drivers of the decline, including quantitative tightening, competition from credit unions and online banks, and money market funds. But we see that the main driver of deposit outflows was due to households ramping up their direct investment in U.S. Treasurys.

As the Fed tightens, the newsletter reports that changes in the balance sheet mix are taking place, including the balance of noninterest-bearing deposits, which has slowed relative to the growth of interest-bearing. Banks are also seeing an increase in CDs, and considering anew the economics of wholesale funding which they were still letting run off last year, now that deposit costs are on the rise and narrowing relative to the cost of Federal Home Loan Bank advances and brokered deposits. While they fret over deposit outflows, bank treasurers still sit on an historically high base of deposits and have room in general to let more deposits run off and fund more loans at the same time. Even as the Fed ultimately reaches a terminal rate sometime in 2023 as its latest projects suggest, they remain reluctant to commit the excess deposits they have deposited at the Fed into more bonds or beyond the front-end of the yield curve, waiting for a clearer sign that the terminal rate is truly in sight.

The Bank Treasury Chart Deck examines the disparities between the 50 states in terms of the average ratios of loans to deposits (LDR) and deposits to total assets, highlighting how despite mounting concerns about deposit scarcity, both ratios are little changed this year. LDRs are just slightly off of historical lows, and deposits still fund a record percentage of total assets, down no more than a percentage point or two across the states. The slides also show how much of the deposit outflow was concentrated in a few states, especially California and New York. The final set of slides looks at commercial and industrial loan growth and other drivers of growth, while comparing the trend to the Fed’s latest Senior Loan Officer Opinion Survey on Bank Lending Practices, which found that demand for credit by firms (both large and small) has cooled, and that lending may slow next year.

Bank Talk finds Van and Ethan weighing the pros and cons for incorporating securities booked in held-to-maturity (HTM) in with loans as an adjusted ratio of loans to deposits (LDR) to measure a bank’s overall balance sheet liquidity. Along the way, the two discuss some of the accounting issues related to mark-to-market losses in the bond portfolio. While showing Van that, even including HTM and available-for-sale (AFS) together with loans in the LDR, the industry is still sitting on historical levels of excess funding, Ethan observes how bank treasurers remain concerned about deposit funding scarcity. He suggests how the scarcity mindset with deposits is not unique and plays out in the payment system.

Walking Van through the rules of Fedwire, which handles $4 trillion in payments a day, Ethan relates takeaways from a recently published study by the Fed about its service. The study found that even though the Fedwire participants sit on a mountain of reserves than they did pre-quantitative easing (QE) 2, and way more than before QE1, they still operate as if reserves were a scarce resource, and match inflow to outflow payments. Ethan concludes by saying he continues to think the Fed’s quantitative tightening will have limited impact on bank liquidity but can appreciate that liquidity is far more complicated than what can be boiled down, even generally, into a ratio of two balance sheet items, such as loans and deposits. While placing his faith in balance sheet numbers, Ethan admits that, sometimes, flow matters more than a balance—even when the balance is as high as deposits and bank reserves at the Fed are today.

Click below to view the reports:

• The Bank Treasury Newsletter Chart Deck: December 2022
• Bank Talk: December 2022
• The Bank Treasury Newsletter: December 2022

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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