This Month’s Chart Deck

Despite the promise of operational efficiencies as a benefit of technology spending, the number of full-time equivalent (FTE) employees of FDIC-insured depository institutions has been roughly unchanged for the last quarter century at over 2 million. During that time, the number of institutions shrank by half to less than 5,000 (Slide 1), and thus, the average bank today employs 460 FTE employees, compared to 200 at the start of the present century.

Last month, the FDIC announced that it would no longer publish the total assets of problem banks as it had been doing since 1990 and only disclose the total number. There were 66 institutions on the list as of YE 2024 (Slide 2), up from 52 a year ago. Still, compared to the historical average stretching back for 40 years, the number of problem institutions remains low, as would be expected given the industry's solid financial condition, as bank supervisors have repeatedly attested.

Bank consolidation continues to shift the composition of the Federal Home Loan Bank (FHLB) membership from banks to credit unions (Slide 3).

The FDIC withdrew a proposal on brokered CDs, which would have broadened the definition of a deposit broker to include a fintech that banks might use to source deposits and could have increased their operational costs. Restrictions on brokered CDs generally cover only banks that do not meet the threshold for well-capitalized, but the proposal would have been further reaching than just a few dozen undercapitalized institutions. At YE 2024, brokered deposits equaled over 6% of total industry deposits, compared to the 5% 40-year average (Slide 4).

The US Treasury announced that it plans to raise $800 billion of net new debt in Q1 2025. Individual investors will be a significant funding source, as they already hold $2.7 trillion, or 10% of Treasurys outstanding (Slide 5). Since YE 2019, the Treasury increased Treasurys outstanding by $11 trillion (Slide 6).

The single largest investor group in Treasurys is foreign and international, which held $8.6 trillion at YE 2024. Mutual funds held $5.0 trillion, followed by the Fed at $3.8 trillion, individual investors, and then banks, which held $2.2 trillion. Banks increased their investment in Treasurys by 19% in 2024.

The FOMC announced that it will reduce the monthly pace of Quantitative Tightening (QT) for Treasury securities next month to $5 billion. When it began QT, the monthly Treasury cap was $60 billion, which last year it reduced to $25 billion. QT has had virtually no effect until now on the balance of reserve deposits on the Fed’s balance sheet because almost every dollar that came out of the Fed’s System Open Market Account (SOMA) portfolio was either balanced by dollars running off the Reverse Repo Facility (RRP) or the Treasury General Account (TGA).

In the last two months, the balances for both the RRP and the Treasury General Account (TGA) are down to period lows (Slide 7) and likely cannot absorb further QT outflows going forward. Reducing the cap on Treasurys from $25 billion to $5 billion is a clear signal by the Fed that, in pursuit of policy to maintain abundant reserves, it intends to maintain the balance of reserve deposits at its present level ($3.5 trillion).

Cumulative negative Treasury remittances (IOUs from the Fed to the Treasury) equal over $225 billion, created by the lower rate the Fed earns on its SOMA portfolio compared to the rate it pays out to banks and its other counterparties on their reserve deposits and investment in the RRP, respectively. But thanks to rate cuts last quarter and the effect of new purchases, the Fed began to generate breakeven net interest income this month (Slide 8).

Higher mortgage rates may have cooled the housing market, but thanks to a supply/demand imbalance, home values remain at a historical high and continue to head higher through the end of Q4 2024 (Slide 9).

Last January, following the change in Administration, the White House issued an executive order to create a strategic reserve for cryptocurrencies. Since then, the value of cryptocurrencies has gone through a market correction led by Bitcoin, which fell from $110,000 when the order was published to $85,000 this month (Slide 10).