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 Pre-Count Their Rate Hikes, looks at the rate environment facing today’s bank treasurer, comparing it to prior rate cycles and to the volatile rate period between 1979 and 1982, when Paul Volcker was appointed Fed chairman and raised the Fed Funds rate to 20%. Bank treasurers remain reluctant to immediately jump on the opportunity in the bond market given the sell-off in rates since the publication of the Fed’s latest minutes on January 5, which was more hawkish in tone. They prefer to see markets stabilize first. Their consensus view around the number of rate hikes, arguments why the Fed could be more aggressive in addressing inflation this year than the market might expect, and how they are positioning their balance sheets—and in particular, their bond portfolios—as best they can for all outcomes are discussed in more detail.

Balance sheet trends are also examined, including the latest data showing both loans and deposits surging through the end of the year, with the gap between them widening to a record $7 trillion more deposits than loans. After surveying optimistic outlooks from bank managers across the country and asset size spectrum concerning lending in 2022, the newsletter concludes with a look at how the London Interbank Offered Rate (LIBOR) transition has progressed since the beginning of the year in the floating rate loan space, an asset class that accounts for a sizable chunk of a bank’s commercial loan portfolio, and the shift over to the Secured Overnight Financing Rate (SOFR).

The Bank Treasury Chart Deck presents a selection of the survey results from the Securities Industry and Financial Markets Association’s (SIFMA) latest economic survey taken in Q4 2021 related to outlooks on rates, inflation, and employment. The findings include how economists expect the 10-Year Treasury to top out over 2% by the end of this year, and that while patient economists still believe inflation will prove transitory—given a lower labor participation rate post-pandemic—they are split between those who believe the labor force is permanently reduced and those who think it will take longer than a year for labor participation to fully recover. Relating this back to the banking industry, the final slides show how headcount fell since Q2 2020, which could be attributable to increased mergers and acquisitions (M&A), and branch closures. Nevertheless, average compensation per remaining employee surged to a record level in 2021.

In this month’s edition of Bank Talk: The After-Show, Van and Ethan discuss some of the latest topics on Van’s radar screen, including geopolitical flashpoints (Russia and Ukraine) and how Van believes that Fed policy error remains a key concern to capital market participants. Ethan offers his thoughts on the Fed’s latest minutes released on January 5, 2022, and prospects for reducing its balance sheet. Ethan also highlights some of the data trends he is following, including Current Expected Credit Loss (CECL) and how the banks that adopted the rule on January 1, 2020, have already reversed a significant portion of the provisions for credit loss they took in the early days of COVID and approaching their Day 1 reserve position. The other item on Ethan’s list was deposit fees and the new industry trend of eliminating them on some consumer products as a way to compete against fintech banks advertising no fees. The duo also discussed the impact that fee removals could have on profits as the trend becomes the norm.

Click below to view the reports:

• The Bank Treasury Newsletter Chart Deck: January 2022
• Bank Talk: The After-Show: January 2022
• The Bank Treasury Newsletter: January 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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