The Institutional Risk Analyst

With the FOMC cutting the target for fed funds one quarter point last week, we expect to see funding costs for banks continue to fall, part of the larger narrative that has seen bank loan demand and share repurchases leaving a great deal of dry powder.  Deposits are growing 2x loans, meaning that the balance must go into securities. One of the reasons that lenders of all sorts have been pushing down loan yields is to capture assets in a market that is short quality duration.

If we told you that large cap financials are outperforming both the S&P 500 and bitcoin over the past month, what would you say? 

Many voices in the media and elsewhere have been predicting an economic slump since 2023. Didn’t happen, but 2025 is very different.

If we told you that the Trump White House was planning to end the issuance of all agency MBS, how do you think this will impact financials?

Like 2023 and 2024, the year 2025 may end up being relatively stable, yet investors remain worried about stealth externalities.

Yes, net loss rates in percentage terms post default are back up to 2010 levels, but the dollar volume of net charge-offs remains very low.

How will the sudden shift in Fed policy impact financials? Are we headed for a recession?

The big story nobody is discussing is the fact that large banks led by JPM, BAC and TFC continue to sell off briskly

Axos continues to rebound after the bear raid by Hindenburg Research. AX ranked 18th in the WGA Bank Top Index in Q3 2024 vs 98th for SOFI

The first comment to make is that consumer defaults are rising across the board. The only question we need to consider is the rate of change

Notice that the Fed stress test is silent on trillions of dollars in mark-to-market losses facing US banks from COVID-era securities

You take the GSEs out of conservatorship, the big banks led by JPMorgan and U.S. Bancorp will own the conventional loan market

Volatility remains perhaps the biggest risk factor today, mostly because of a lack of visibility on unexpected risks.

Simply stated, with T-bills trading significantly above the yield on RRPs, there is no reason for MMFs to leave cash at the Fed

If the FOMC raises the target rate for fed funds further, then banks like CMA are likely to come under renewed selling pressure.

What can SYF tell us about the bleeding edge of unsecured consumer credit?

To survive long-term, both WAL and PACW need to get that beta back down below 2 and closer to 1, but the hawks on the FOMC may not cooperate

Imagine how President Joe Biden will react if Chair Powell needs to announce formal limits on access to US bank deposits.

Ally is still more finance company than bank and really has no core deposit base worthy of the name.

Bankruptcy of Reverse Mortgage Funding may be first step in a systemic crisis affecting the government loan market