April 8, 2023 / VOLUME NO. 256

A Chaotic Quarter Closes

Banks have a big few weeks ahead of them.

The most tumultuous quarter since 2020 closed last Friday and public banks will begin filing their earnings reports. Those filings may tell investors, depositors and regulators how much money they made, and — an important point — their liquidity positions and stability as deposit costs rise. 

By now, it’s well known that the conditions and choices that contributed to Silicon Valley Bank’s insolvency afflict some institutions to various degrees. The industry had $620 billion in unrealized losses in the securities portfolio at the end of 2022; many banks are reexamining their deposit base and overall liquidity profile. At the end of the quarter, banks had borrowed $88 billion from the Federal Reserve discount window and $64 billion from the new Bank Term Funding Program, on top of other wholesale borrowings.

That means quarter-close communications will be another chance for bankers to show the public the rigor of their risk management and analysis. On calls, investors may ask executives to explain liquidity strategies and capacity, the minutiae of their depositor base and how they’re pricing deposits to keep them.

These filings, and a small subset of banks with public earnings calls, will be the industry’s first broad attempt at answering a lot of investor questions. Who is hedging? Who has added sweep networks or encouraged customers to sign up? Who has reached out to big depositors to reassure them, and who is raising money? Who will admit the securities build in 2021 was a mistake; who will remind analysts that their institution sat on cash rather than chase yield? Who is running stress tests, and at what interest rate? 

It won’t be enough to say an institution is solvent. Management teams will need to show the steps they’ve taken to ensure their institutions are resilient and solvent in the face of continued interest rate increases, a potential economic downturn and a potential exodus of depositors.

The public’s trust in banks is damaged. This is a chance for bankers to earn it back. 

• Kiah Lau Haslett, managing editor at Bank Director

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