Founder’s takeaways from the Bank Treasurers’ Peer Group’s first fall meeting.
Joseph Neu
Members of the BTPG have been meeting in the spring for 16 years running, and debuted their Fall Edition meeting this week, sponsored by Morgan Stanley. Here are a few takeaways I want to share.
Banks have enough capital. The expectation is that US banks will pass the next two stress tests, even with with Covid-19 inspired stress scenarios, indicating everyone is well capitalized.
This will free up buybacks and dividends for those that halted them for political reasons.
War for deposits is over. The massive liquidity infusion by the Fed, stimulus and an unfriendly rate environment has ended the war for deposits that banks in the US were waging pre-Covid.
Instead, US banks are turning away deposits, especially by adjusting pricing and fee to discourage them.
Indeed, if you take a close look at ECR and other fees, you may already be paying your bank to hold your money, or effective negative pricing,
A Democratic sweep is NIM (net interest margin) friendly. The outlook for the banking sector will be much improved if the Democrats take the White House and the Senate in the upcoming election.
This would end the logjam on fiscal stimulus, making bank reserves for credit losses suddenly excessive.
With infrastructure spending likely as well, this will push up inflation expectations to the point where the long end of the curve may rise and become more NIM-friendly—all good news for banks.
The bad news is that the regulatory edicts that raise their cost of capital and liquidity will tick up, too, and banks are already losing their competitive edge to less-regulated funding platforms.
