Wonders never cease in the bank treasury world, what with earthquakes in the metro NYC area to eclipses of the sun, but surely the sudden flattening of the yield curve this month, which is now half as inverted as it was last month, must stir the imagination of even the most experienced bank treasurer. This month’s newsletter pulls back the curtain on why a neutral balance sheet is not risk-free…

On the first anniversary of the crisis last March, this month’s newsletter looks at lessons learned. One of those lessons is to beware of lessons learned, especially when they are based on “flawed, post-mortem reviews.”

This month’s newsletter discusses how bank treasurers restructured their underwater bond portfolios last quarter when the 10-year rallied in November and December. It also explains why bank treasurers, most of whom believe they have more to fear from the Fed cutting rates by 300 basis points than raising them, are more hedged for higher rates going into 2024 than they were going into 2023.

There are a lot of strange things going on in the bank treasury world, and as always, bank treasurers know to prepare for anything. You have a yield curve that is inverted for the longest time in decades, and where the marginal cost to fund a loan makes it difficult to lend profitably.

This month’s newsletter discusses the Fed’s rate pause, why the expected cuts may disappoint, and how bank treasurers are planning around the potential for cuts in 2024 if they do happen. While the FDIC board struggles with some of its own internal management issues, its proposed rule to make board directors equally responsible for the management of the bank has got everyone worried…

The FHLB100 report is finally out and, as the newsletter reported in last month’s edition, the FHFA put pressure on the FHLBs to withhold new advances to a failing member and instead, to redirect the call to the Fed’s discount window.

This month’s newsletter discusses the FHLB100, a big deal that has not gotten a lot of press but should considering how important the FHLB system has proven itself to be in the last year and a half since the banking industry’s deposits peaked in Q! In 2023, the Fed started raising rates and shrinking SOMA. The FHFA is supposed to release its report before the end of the year and the latest scuttlebutt is that it may come out next month. Of course, if the government shuts down again, then all bets are off.

An underwater bond portfolio must be one of a bank treasurer’s greatest headaches these days, and the Fed’s signal last week that rates may remain elevated for some time does not ease any of that pain. The choice remains the same: rip off the band-aid, sell the bonds, and, taking advantage of the inverted yield curve, earn back the loss on the bonds over a few years. Or grin and bear it, letting the portfolio continue to be a wet blanket on NIMs until they run off.