PaymentsJournal’s Post

The banking crisis continues. Actually, it's getting worse. I would not hold money in excess of FDIC limits in a bank. We can help you open an account with a custodian where your money is structurally much safer — and can help you get a much higher rate of return than the rate most banks pay on their deposits. Be smart about where you keep your money. #forwardthinking #wealthmanagement #whitwelladvisors #whitwell #thinksmart

The banking crisis continues. Actually, it's getting worse. I would not hold money in excess of FDIC limits in a bank. We can help you open an account with a custodian where your money is structurally much safer — and can help you get a much higher rate of return than the rate most banks pay on their deposits. Be smart about where you keep your money. #forwardthinking #wealthmanagement #whitwelladvisors #whitwell #thinksmart

Going underwater on bonds is no longer the panic sell it was a year ago. In a bid to bolster their financial health, regional banks are increasingly willing to absorb billions in losses by selling underwater assets. This proactive strategy aims to fortify their balance sheets amid rising interest rates and economic uncertainties. By offloading these risky assets, banks are positioning themselves for long-term stability and growth. #FinanceNews #RegionalBanks #FinancialNews #BankingIndustry #Banking #BankingNews #Fintech https://lnkd.in/eSEJmyps

Always intrigued by the ways the banking industry adapts and the evolving relationship between the Fed and banks. Recall when banks were tapping into the #BTFP for lower borrowing costs? (The Fed recently amended the program’s rules, announcing its plan to close it in March 2024.) Now, credit-linked notes are on the scene. They offer benefits like reduced regulatory capital requirements and diversified funding. Notably, the article points out, ‘Banks wanting to issue CLNs have been turning for permission to the Fed. The Fed has approved requests in recent months from Morgan Stanley, U.S. Bancorp, Huntington and Santander Holdings, whose parent company has issued CLNs in Europe, where regulators have long been open to them. The Fed's approvals should lead to more activity in CLNs, bank lawyers and industry advisors said.’ But here's the question: Is this business as usual, or flashbacks to credit default swaps during the GFC? #creditrisk #banks #federalreserve

Today's closing time for new loans via the Bank Term Funding Program, set up a year ago to navigate banking sector stress caused by the implosion of Silicon Valley Bank. Experts think the BTFP did what it needed to do and that's put the financial sector back on firmer footing. But the experience highlights how important it is for the central bank to reform its long-running lender-of-last resort power, the Discount Window. #federalreserve #bankingindustry #emergencyresponse #finreg #monetarypolicy https://lnkd.in/eYjrtmfb

No more arbitrage play for the BTFP (Bank Term Fund Program). They've put a floor in to stop this from being possible, which make sense. The facility was there for liquidity management, not free money. Also, the facility will stop making loans on March 11th, as announced Wednesday night. Initially, I thought we would see the usage drop significantly as banks could no longer take advantage of the arbitrage. However, now I think we'll probably see some last minute activity since the advances last for a year, and the terms on the program are still favorable. Essentially, financial institutions will be able to lock in funding for a year at the par value of securities that may need to take a haircut elsewhere. "The Fed set up the BTFP in response to a series of bank runs at large regional banks. The episode led to the rapid failures of Silicon Valley Bank and Signature Bank, as well as significant stress at several other similar sized institutions, including First Republic Bank, which failed several weeks later." "By allowing the authorization to lapse, the Fed is formally acknowledging the end of the crisis — though it has been out of the public spotlight for months. The acute part of the episode largely ended after regulators took the twin measures of setting up the facility and announcing that uninsured depositors at Silicon Valley and Signature would be made whole." "The BTFP accepts the same collateral that can be pledged to the discount window, the Fed's last-resort lending facility. However, the BTFP accepts securities at their full par value, rather than their market value minus a set discount, or haircut. The terms allows banks to temporarily offload high-quality securities with unrealized losses. The Silicon Valley Bank run was triggered, in part, by the bank selling such assets at a loss to generate liquidity."  "Federal regulators have made emergency readiness a top priority in the wake of last spring's bank runs, issuing guidance on liquidity management and urging banks to test their ability to borrow from the Fed's discount window regularly." #banks #creditunions #btfp #federalreserve #rates https://lnkd.in/gqGkU3zM

Identifying eligible collateral is not an easy process. Each FRB has collateral guidelines and there are material differences among them. Also, excluding insider loans and foreign obligor instruments has to be done even if a bank has plain vanilla loans. Banks should consider inventorying, segregating, and pre-pledging eligible collateral in advance of a stress event. "Even so, the 1,996 banks with pledged collateral at the discount window is less than half the 4,824 total, the data show. A total of 3,900 banks are signed up, leaving as many as 900 banks without any access at all." #discountwindow Federal Reserve Bank of New York https://lnkd.in/eMzSKsHt

Of interest. BTFP was only a temporary Band-Aid anyways ("emergency lending program created by the Federal Reserve last March that provided emergency liquidity to US banks") since banks' balance sheets are not actually as strong as they report - that is, banks report "held-to-maturity" value vs. actual/current market value; AND the BTFP was actually a loan/new liability vs. capital investment. The good news for our industry is that our accounting is different. For well capitalized insurance companies like W & S/Lafayette, who "mark-to-market" (reflect current market value instead of the future value), our financial reporting is more conservative and transparent. https://bit.ly/3wU96aH

"Every single weekend a regional bank is going to go bye bye!" - Howard W. Lutnick's prediction made this week about how 500-1000 smaller banks will fail in 2025 and 2026. While that's some fuzzy math, the data nevertheless supports his hypothesis that we're still in early innings in this distressed cycle. When interest rates bottomed out during Covid, regional banks went on a refinancing spree from mid 2020 through 2022. The most common loan term was either five years, or a ten year loan with an interest rate reset after year 5. When either of these milestones occur in 2025 through 2027, banks will be forced to mark their loans to market if there are any credit issues. Banks are now actively trying get ahead of this problem by selling loans. Yet they can't get their desired pricing. If they take the hit, their reserves will be depleted and the excess losses could lead to insolvency. Banks need time to earn their way out of their problems, while they hope for some rate relief from the Fed to improve debt service coverage and asset prices. Some are considering structured solutions, yet the math often just doesn't work for the more deeply troubled banks. For the banks that don't have any good options... bye bye! #banking #regionalbanks #significantrisktransfer #SRT