BTN with Ethan Heisler

Thanks to low funding costs, bank treasurers can tolerate the low yields on the Resi mortgage loans they originated during COVID. It must kill them to earn less than 3% when the going rate this month shot up over 7%. At least they are still breaking even. Selling the loans is out of the question because of the losses they would incur. The alternative is to hold them to maturity. But if funding costs rise as bank treasurers expect, these assets could become more costly to hold. The question for our bank treasury readers is: is there a segment of your "locked-in" homeowners who would sell their house and move to another one but won't because of the refi cost? If so, why not offer to split the difference with them and get America moving again?

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The world never looked better. Happy Birthday America!

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The world never looked better. Happy Birthday America!

Subscribe to The Bank Treasury Newsletter and Podcast at thebanktreasurynewsletter.com for professional Insights and commentary on bank treasury issues, investment portfolio strategy, and more. Listen on Apple Podcasts,Spotify, and Amazon. Follow us on LinkedIn.

Higher rates are coming and Marty Leibowitz’s insights into bond pricing could not be more relevant.

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Tune in to this month’s episode of the Bank Treasury Murder Mystery series to help solve the case of a dead bank treasurer, a Treasury bond, and an empty safe. On February 22, 1878, J.W. Barron went to work and never came home when bank robbers hit the Dexter Savings Bank in Maine. Join your co-hosts, Janet and Sheila, as they piece together what happened that day in the late afternoon and connect the post-Civil War bank-treasury landscape, a Gilded Age of depressions, bank runs, panics, gold rushes, greenbacks, and bank notes, to today’s era of the K-shaped economy and the stablecoin. 

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In addition to telling Senators this month during his confirmation that he is not a sock puppet, Kevin Warsh insisted that the Fed’s balance sheet is too big, is harming the economy, and that his job on Day 1 will be to shrink it back to where it was before anyone had ever heard of QE. But here is a question for the newsletter’s fellow bloggers, posters, and readers: how has it hurt the economy? Because, to hear the bank executives who met with investors this month, who were all about optimism and how everything is fine (for now), the harm it is causing is not much in evidence. Certainly, the Fed’s balance sheet cannot be as harmful as all the other chaos these days roiling markets, the price of gas, and fertilizer. The newsletter looks at the plan Kevin Warsh would pursue to shrink the Fed’s balance sheet and what would need to change to get the job done.

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Sometimes, bank treasurers might feel like they’re living in a make-believe world. It’s really tough to stay focused when they’re worried about things like a war in Iran, economic uncertainty, political instability, Fed uncertainty, and big changes like moving to instant payments, rapid industry consolidation, and new, empowered fintech competitors, NDFIs, and AI—all at the same time. They also need to adjust to a new tone with their bank supervisors. This month’s newsletter podcast talks about these challenges and how bank treasurers are navigating through all these rapid changes and 10X volatility.

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Tried as he might on his African safari vacation, your editor in chief could not ignore the news from back home. He saw a lot of lions, giraffes, zebras, rhinos, hippos, elephants, cheetahs, and leopards, witnessed real-life drama when a cheetah tried and failed to kill a baby wildebeest, and spent countless hours with a guide to point out all the amazing birds in the Serengeti. But all he could focus on was the Kevin Warsh nomination, the FDIC’s new willingness to approve Industrial Loan Company charter applications, and the OCC’s approval of stablecoin-related trust bank charters. If that was not enough to occupy his attention, he could not stop thinking about how the Small Business Administration’s new Small Business Investment Company could be good news for bank treasury.

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Trump’s feud with Powell adds to the chaos in financial markets, but recalls many other episodes in American history when presidents and central bankers clashed. From Andrew Jackson and Nicholas Biddle fighting over the future of the Second Bank of the United States, to Harry Truman firing then-Fed Chair Tom McCabe, which led to the 1951 Treasury Accord, politicians and the Fed manage an uneasy alliance with implications for the future direction of interest rates and the economy. Bank treasurers might think that the Fed’s political independence is sacrosanct, but forget that when the politicians in Congress chartered the Fed in 1914, the Treasury Secretary was a voting member of the FOMC. Bank treasurers who successfully manage through market and economic uncertainty are only doing their jobs by delivering consistent performance through ups and downs.

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AI is the future, and the future is now, at least it is one of next year's top priorities for every bank treasurer at large and small banks and credit unions. The question is how? How do you implement AI? The answer to that question is another question: what do you want to do with it? Answering that question is not the IT department's or the intern's responsibility. The use cases need leadership at the top to decide and see implementation through if pilot projects are ever to yield the productivity gains the technology promises.

Subscribe to The Bank Treasury Newsletter and Podcast at thebanktreasurynewsletter.com for professional Insights and commentary on bank treasury issues, investment portfolio strategy, and more. Listen on Apple Podcasts,Spotify, and Amazon. Follow us on LinkedIn.