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

Kroll Bond Rating Agency (KBRA) releases this month’s edition of the Bank Treasury Newsletter, the Bank Treasury Newsletter Chart Deck, and Bank Talk: The After-Show.

This month’s newsletter, Bank Treasurers in Need of a Free Upgrade, highlights the widening gap between loans and deposits in the banking system, with $5 trillion of excess deposits as of mid-August, compared to $3.6 trillion in March 2020 and $1.1 trillion back in August 2010. The deluge of deposit inflows since the onset of the pandemic has slowed in the last month, which may help relieve the dilutive pressures on bank net interest margin (NIM) and profitability. With expectations these pressures will continue, bank managers are redoubling efforts to wring costs out of their operations and hope to leverage the growing acceptance of virtual meetings to save on travel and entertainment expenses in the coming year, and perhaps more permanently.

With the LIBOR transition continuing to progress, the financial industry in the U.S. is preparing for a “big bang” in mid-October, when the industry switches from the LIBOR-OIS rate to SOFR when discounting collateralized derivative positions. The relationship between LIBOR-OIS and SOFR has flipped over recent months, coinciding with changes in the level of bank excess reserves. The newsletter also reports on the implementation of a new stress capital buffer (SCB), which the Fed will require institutions with $100 billion or more in assets to use in place of the Basel 3 capital conservation buffer, to reflect the new tailored approach to bank capital requirements.

The Bank Treasury Newsletter Chart Deck looks at how the financial industry has tightened credit underwriting standards in residential mortgages but still managed to generate near-record volumes, with higher-quality borrowers in the months since the onset of the pandemic. On the other hand, credit card volumes are falling as the public reduces debt in contrast to its behavior after the global financial crisis, when it drew down on available lines. With ample liquidity in the system, later slides in the chart deck look at the shrinking balance of the Fed’s central bank liquidity swaps, while the PPP lenders still make limited use of the Fed’s liquidity facility.

Finally, this month’s edition of Bank Talk: The After-Show discusses the industry’s struggle to leverage efficiency gains with profitability under pressure. While the industry cut noninterest expense by 121 bps of average assets, net revenues has fallen 250 bps, leaving its efficiency ratio stuck above 60%.

Click below to view the reports:

• The Bank Treasury Newsletter Chart Deck: August 2020
• Bank Talk: The After-Show: August 2020
• The Bank Treasury Newsletter: August 2020

About KBRA and KBRA Europe

KBRA is a full-service credit rating agency registered with the U.S. Securities and Exchange Commission as an NRSRO. In addition, KBRA is designated as a designated rating organization by the Ontario Securities Commission for issuers of asset-backed securities to file a short form prospectus or shelf prospectus. KBRA is also recognized by the National Association of Insurance Commissioners as a Credit Rating Provider and is a certified Credit Rating Agency (CRA) with the European Securities and Markets Authority (ESMA). Kroll Bond Rating Agency Europe Limited is registered with ESMA as a CRA. Kroll Bond Rating Agency Europe Limited is located at 6-8 College Green, Dublin 2, Ireland.

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