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4 October 2023
Financial earthquakes can happen without warning!
The Deposit Story Begins To Brighten Slightly

The Maginot Line.

The Titanic.

Everyone knows these historic examples of hubris and false security, and no bank wants to be compared to such disasters. But sometimes, even if you have done everything right, and regulators have given you an A+, environments can change quickly, and in a day you can go from impervious to impoverished.

Essentially, financial earthquakes sometimes happen without warning. And as much as you might have shored up your foundation, the metaphorical Richter scale doesn’t care. has recently partnered with the Bank Treasury Newsletter, and in its September issue, Editor-in-Chief Ethan Heisler takes readers on a metaphorical trip through time to the ancient city of Petra. Once a wealthy node on ancient trade routes, Petra suffered an earthquake and collapsed, both literally and economically.

Now, those of us who don’t have the initials SVB, SBNY, and FRB are still standing and are trying to apply some hindsight. But, as Ethan points out, while bank treasurers wince at the wreckage of the underwater bonds they’re holding and question their past selves’ judgment, back in 2020 and 2021 the data said that the right thing to do was buying these low coupon bonds, booking them in HTM, and sheltering them from mark-to-market.

What’s more, even the regulators had it wrong. After all, the FDIC thought that First Republic Bank was in great shape. But then it turned out that in a new social media environment a bank run can be of such magnitude that it can wipe out a bank in a day.
And now, the bank examiners themselves find themselves in unknown territory, just like the rest of us. In this environment, bank treasurers are in the impossible situation of being expected to somehow “pilot the plane and prevent a crash…even if the wings fall off and the engine stops.”

So what is to be done? There’s that Kierkegaard quote about life only being understood backwards, but while that’s a nice thought, the reality is that history can’t always be a guide. As this month’s Bank Treasurer Newsletter outlines, we are in uncharted waters.
Given that rates may stay elevated for a while, does that mean that bank treasurers should sell the underwater bonds? Or hold on to them and see what happens? Ethan suggests that “the time to choose could be running out.”

Ethan’s charts lend great insight. It looks like the outflow of deposits is about to crest, if not already. Ethan’s visual below shows that there’s been a turnaround for regional banks after the SVB collapse, and now the Fed H.8’s small bank peer group has seen their deposits increase a bit.

The Deposit Story Begins To Brighten Slightly

As for outflows, those that didn’t go to the large bank peer group “went to the money market funds.” If you check out the data in the newsletter and the slides in the chart deck, you’ll see that Ethan examines what is developing with those funds and their investment in the Treasury repo market.

The short version is that while the funds moved some of the money that had gone into the Fed’s RRP to other repo counterparties as the Fed was reducing its RRP from $2.1 trillion to under $1.5 trillion, the funds’ total investment in the Treasury repo market fell during the May to August time period from $3.4 trillion to $3.0 trillion.

This means that cash is leaving the repo market, which, as only Ethan can put it, “might be a tad inconvenient.”

So, if you are a bank treasurer suffering from flashbacks about previous repo market collapses, we sympathize. And we’re here to help.

ORSNN brings together credit unions, banks, and Wall Street dealers in a seamless, double-sided marketplace. Equipped with state-of-the-art analytics and workflow management tools, the platform offers unparalleled liquidity options and transactional efficiency, effectively transforming the traditional loan-trading landscape and removing the information asymmetry associated with traditional whole loan trading.

So, while, as Ethan points out, we may not know what the future will bring, there are steps you can take with ORSNN to ease your fears and flashbacks as you level up your liquidity.

Click here to find out more about ORSNN’s cutting-edge electronic trading platform , and here to subscribe to the Bank Treasurer Newsletter.

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