Core deposits are an important but often elusive concept with implications for both interest rate risk and liquidity. A strong core deposit base can help insulate a bank from interest rate swings and market turmoil. Accurately defining and measuring core deposits remain significant challenges for regulators, bank managers, and analysts. How can recent experience help…

Last year’s bank failures brought increased attention to large, uninsured deposits and banks’ reliance on them as a source of funding. Taking a data-driven approach, I looked at the recent trend in uninsured deposits, the types of banks with the highest (and lowest) concentrations of uninsured accounts, and whether and to what extent deposit concentrations…

Regulators closed Philadelphia-based Republic First Bank on April 26, 2024. Fulton Bank, NA assumed most of Republic First’s deposits and assets in an FDIC-assisted transaction. The FDIC’s Inspector General will likely conduct a Failed Bank Review that will try to identify the causes of Republic First’s failure. In the meantime, here are some takeaways based…

It’s practically an article of faith in some quarters that higher interest rates benefit banks. But is this really the case? Recent experience has led some to challenge this assumption. Rates have started to trend up again with 2024 rate cuts looking less frequent and less likely.  A closer look at the evidence suggests that…

The stress test scenarios don’t just ignore IRR, they reward it. As of December 31, 2023, Charles Schwab had unrealized losses on its investment portfolio of $21 billion, more than 50% of Tier 1 capital. BAC has unrealized losses of more than $100 billion, or more than 45% of Tier 1. The supposedly stressed rate…

An oft-repeated truism is that government grants special treatment to homeowners and favors the housing industry. Discussions of the “housing lobby” inevitably preface with the word “powerful.” But is this truism, well, true? Upon closer inspection, the record is more mixed than many assume. Several government programs and incentives promote home ownership. The government explicitly…

Proposed new capital standards for large banks (Basel Endgame) include some fundamental changes in measuring market risk. The new standards would replace the current value-at-risk (VaR) approach with the expected shortfall approach. The market risk proposal is exceptionally complex, and I don’t intend to get into the gory details. Instead, I’ll focus on broad conceptual…

The Basel Endgame proposal would ditch the AA’s models-based approach to credit and operational risk and replace it with an amped-up version of the SA. By moving credit risk weightings under the AA closer to what already exists under the SA, the proposal would result in a real capital charge for operational risk. 

National banks must generally limit their extensions of credit to a single borrower to 15% of capital. This limit increases to 25% for loans secured by “readily marketable collateral.” …In contrast, the Pittsburgh FHLB’s advances to PNC represent 637% of FHLB’s capital. The San Francisco FHLB’s extensions to JPMC were 397% of capital.