Bank Execs Offer Peek Into Their Current Strategies and Practices
As with any survey, take its results with a grain of salt. Feel free to add a few more spoonfuls since the responses came a month before what was supposed to be the closest and most influential presidential election in modern US history.
Anyway, here are some nuggets of information that are noteworthy from a liquidity risk perspective.
Hold on a second, readers always need to know the data sample specifics before sharing across social media channels and watercoolers, that's just good journalism. And since this media outlet is not (yet) owned by a billionaire with altruistic intent, we'll cover that real quick:
Senior financial officers at 100 banks were surveyed, 97 responded
Of the 97, 61 are domestic banks and 36 are foreign
The 97 banks are responsible for >80% of total reserve balances (aka they big)
Surveys were due Oct 4, participants were given 2 weeks to respond (gotta love the double standard of issuing a 14-day deadline and then taking 62 days to write the report)
Alright, now that we know who we're dealing with let's check out my two biggest takeaways from the data:
Balance sheet growth is a steady holding pattern
SEE, this is why it's important to know the data details, my gut tells me the results of a post-Trump victory survey would differ from this one, but this is all we have until May 2025.
71% of banks expect their balance sheet to stay within +/- 2% of the current size
Over half don't expect a change to asset levels across all categories
Over half don't expect to change their reserve levels, even in hypothetical interest rate environments
Banks are STILL unwilling to borrow from the Discount Window
Well, the results are in and the Fed/OCC Discount Window de-stigma campaign failed miserably. When will government representatives learn that giving speeches on how things will change while not acting on anything they say is not an effective approach? Maybe Barr and Hsu should send spam texts to bank leadership saying the DW isn't stigmatized anymore instead.
On a 1-5 scale with 1 being "very willing to borrow, banks are at a 2.2 willingness to borrow score in both firm-specific and market-wide stress
Banks don't think the DW operational requirements are burdensome, other than pledging/withdrawing loans at 2.6 (1-5 scale)
Some other interesting data points:
Brokered Deposits/CDs are generally expected to decline (20% of banks expect down 5%+, only 8% expect up 5%+)
Domestic bank reserve balances are expected to shrink (13% expect to increase their balance, while 34% expect to decrease)
98% of banks expect their loan balances to stay steady or grow
Preference toward Level 1 HQLA, 30% expected to grow L1 balance, vs only 13% Level 2
Banks are chasing retail deposits, with 34% setting deposit rates to grow retail balances, vs only 17% and 8% setting rates to grow wholesale operational and non-op
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