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

[September 28, 2020]

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 Chart Deck, and Bank Talk: The After-Show.

This month's newsletter, Bank Treasurers Face Climate Change, examines the impact of climate change-related events on the Fed's monetary policy and bank supervision, and how the increasing frequency of these events complicates its conduct of both. Despite the FOMC's statement this month to hold Fed Funds at 0%-25% for the foreseeable future, bank treasurers remain inclined to leave their excess deposits at the Fed. Even though they are under pressure to mitigate their net interest margin compression, low rates and the current shape of the yield curve limit their alternatives. Instead of looking for options on the asset side of their balance sheets, bank treasurers still hope to squeeze more basis points from their cost of deposits. In this context, the newsletter offers historical perspective for the accelerating pace expected with branch closures and the sudden surge of the public's acceptance of mobile banking as a consequence of COVID-19.

The Bank Treasury Chart Deck sifts through some of the FDIC's latest quarterly data and presents slides showing how the muted pace of bank mergers and acquisitions began to slow even before the pandemic struck last March, ever since the Fed began to tighten monetary policy in 2015, and even after the Fed reversed course in 2019 and began to cut again. Among the other slides in the deck, we highlight the divergence in provisioning expense between banks that adopted the new Current Expected Credit Loss (CECL) accounting rule and those that continue to follow the incurred loss method.

Regardless which accounting rule they use, credit reserves already exceeds the 1.25% cap under the risk-based capital rules, above which every incremental dollar of additional reserves not only reduces Tier 1 capital, but also reduces total risk-based capital. Nvertheless, the industry well exceeds capital requirements and banks with total assets under $10 billion are eligible for the new Community Bank Leverage Ratio rule which, in any case, excludes the credit reserve.

The final slides in the deck show how surging levels of bank deposits resulted in the FDIC's insurance coverage fund falling below the required 1.35% minimum ratio, which could lead to higher assessment if the rate of deposit growth does not slow. Deposit origination is increasingly coming through mobile channels, while the public's growing acceptance of cyberbanking parallels its growing acceptance of crypto currencies-an uptrend that began before the pandemic and illustrated by the expansion in the U.S. of Bitcoin ATMs.

In this month's edition of Bank Talk: The After-Show, Van and Ethan discuss how the Fed's central bank swap program it reopened last March in response to the turmoil in global markets caused by COVID-19 worked to ease financial conditions in the leveraged loan and CLO markets, where foreign investors play a significant role. Ethan goes through the mechanics of a swap and the how foreign exchange rates influence foreign investor appetite for U.S. dollar assets.

Click below to view the reports:

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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