Since the election falls right in the middle of bank’s budgeting and planning cycles, it is worth spending some time looking at potential outcomes. With a little more than two weeks before the election, the current polls and betting odds favor a Democratic Administration and both houses of Congress. According to FiveThirtyEight, Biden has a +10.5% lead, up from +7.6% two weeks ago. The polling also shows a 96% House retention and a 73% chance of winning the Senate.
Last week a seven-year-old asked us what banks do. That question got us to pause. How do we explain a whole industry to a seven-year-old in less than a minute, keep his interest, and do justice to the answer? The simplest answer is that banks allow customers to change the timing of their cash flows. It’s really that simple at its core.
The Covid-19 pandemic has decimated the US economy, and the recovery may take longer than initially suspected. However, currently, community banks have an opportunity to identify and win or retain longer-term, credit-worthy relationships at better credit spreads. There are also substantial challenges facing the entire banking industry.
Based on our observations, we estimate that somewhere between 20% and 25% of community banks have adopted a policy requiring minimum yield or credit spreads for their newly originated commercial loans. The strategy requiring minimum commercial credit spreads may be well-intentioned, but the results for banks may be less than optimal.
Uncertainty creates significant challenges for business managers, and while variability in outcomes is a business constant, the degree of uncertainty during a pandemic is extraordinary. Therefore, how do community banks distill today’s interest rate forecasts and position their loan portfolio for optimal performance? Choosing the duration of your loan portfolio isn’t a passive decision. Banks can play an active roll in structuring their loans to achieve both the optimal duration for the borrower as well as for the bank.
There is no surprise that you can only do so much when it comes to educating PPP borrowers. We have produced a comprehensive website, executed a detailed email campaign, conducted a series of webinars, produced videos, have a Getting Started Guide, and distributed a checklist - still, borrowers remain deficient in completing their application accurately. In this article, we explain this educational black hole, provide the latest data, and detail not only what it means for banks looking to process applications more efficiently but ways to solve the problem.
It is around this time before a presidential election that bankers start to ponder how the results of the election will affect credit, interest rates, and the general business environment. The stock and the acceptable answer is that presidents get too much credit when the economy does well and too much blame when it slumps. The complex and intertwined US capitalist economy goes through boom-and-bust cycles independent of any president’s actions.
We sent out a survey to several thousand community bankers across the country to understand bankers’ concerns, challenges, and opportunities in the current business environment. We feel that organizing an exchange of ideas and sharing of strategies is beneficial to many bankers. We also offered resources (videos, white papers, policies, marketing material, online proposal generators, and calculators) to help bankers obtain information based on their specific survey responses. The survey only took five minutes and consisted of five questions.
While several commercial real estate (CRE) sectors are showing signs of stress, the industrial sector is one of the few bank credit lines that are improving. Companies gained confidence at the end of the second quarter and started to lease more space. As such, weekly leasing activity jumped back to pre-Covid-19 levels after hitting a low in mid-April. In this article, we take a quick look at national CRE industrial sector economics and explain why banks may want to consider reallocating more capital to this area.
In the next twelve months, the transition from LIBOR to alternative Risk-free Rates (SOFR in the US) will take an important course. Banks with products tied to LIBOR need to understand the implications of ISDA Fallback Protocol and how to manage possible risks with this critical industry transition. Shortly, ISDA (International Swaps and Derivatives Association) will be publishing LIBOR Fallback Protocol. Firms that sign up for the LIBOR Fallback Protocol agree to the spread adjustment and the fallback rates if LIBOR becomes unavailable in the future.