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 Have Questions for Ben A.I., presents a conflicting picture of the state of bank deposits and how the developing interest rate cycle will impact this critical source of balance sheet funding. For example, H.8 data show that deposits continued to drain out of the banking system in Q4 2022, but at a slower pace than in Q3 2022, as the Federal Reserve continued to hike rates. Further, management reported this month that deposit repricing beta is still increasing, but also at a slower pace compared to the previous quarter. The newsletter also reviews anecdotal evidence that suggests community banks are becoming more aggressive at pricing deposits, while data from the Fed's Discount Window points to potential liquidity stresses in that group.
Notably, despite the Fed's ample reserve policy, market conditions may be tighter than implied by the fed funds rate thanks to forward guidance and quantitative tightening, based on a review of a San Francisco Fed study. The report also discusses the implications for net interest margins (NIM) that most of the deposit outflows are coming from demand deposit accounts (DDA). DDAs were not as profitable for banks back when the Fed was keeping rates at the zero lower bound, but today, with the effective fed funds rate at 4.3% and expected to go higher, the remixing of deposit balances from noninterest- to interest-bearing deposits is adding downward pressure on NIMs. Bank management credits strong interest-earning asset growth for offsetting those pressures and driving net interest income (NII) growth in Q4 2022.
Continue read on benzinga.com