Vio Bank on LinkedIn: Vio Bank is a division of MidFirst Bank, one of the strongest banks in the… (2024)

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Check out the April edition of #KFI Insights, we cover the failure of Republic First, Van's view on Big #Bank Earnings and recent M&A transactions.Learn more: https://lnkd.in/epSYD4P7

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Incredibly simple way to recognize the challenge for banks and why they are lending less today. Worth a quick read!

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A great explanation of the systemic risk in US banking industry. Now multiple this story by the approximate number of 4200 banks and you will come to appreciate the size of the problem for which there appears to be few solutions.Except create more money out of thin air! Which is the classic move from the Fed’s playbook.

Nice post Tommy Esposito. - I've been alluding to losses in related posts - see graph below of reported vs actual CET ratios for large banks. What some commenters don't get (or care about) is doing nothing is a decision as well - one which produces zombie banks, less bank lending and more sniping by private credit investment. Maybe there is an incentive problem here? The regulators AND management are complicit in creating the situation banks find themselves in today. Small banks need tools to manage their balance sheets NOW.

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A week ago a former colleague who is a community bank CFO invited me to join him for a Phillies game. Of course I said yes. Wanted to share some very interesting intel from him that I think is applicable not just to US community banks, but to ALL institutions managing interest rate risk right now.Our seats were in the sun, so we walked onto the infamous concourse. One of the great features about Citizens Bank Park is that you can see the game from the concourses. Amazing sight lines. Anyway, we settled in with beers along a rail in right field, and he unwound his tale of regulatory woe. He said that he's catching a lot of grief from the FDIC because his Leverage Ratio (that's total Tier 1 Capital divided by Total Assets) is below 8%, which is the Mendoza Line of banks. It's an unwritten rule but everyone knows it. You can't go below it (unless you're Schwarber and get a lot of walks and titanic home runs, but I digress). They are demanding he either raise capital or sell assets to correct it. But he is saying to the FDIC, basically, "No, we can't do that." Why you ask? It's actually very simple - and a great insight into managing bank balance sheets of all sizes right now. Here goes. The only assets he can sell to reduce Total Assets and re-calibrate to the 8% Leverage Ratio are in his securities portfolio, made up of MBS with an average coupon of 3%. They are AAA but valued at 80-85 cents on the dollar. So if he sells them, he wipes out his Tier 1 Capital which would "Realize" the unrealized losses of those bonds. Thus his leverage ratio would end up even worse than where it is now.He told his board that they just have to wait until those 3% coupon bonds pay off or mature over the next 5-10 years, or rates fall to a point where the URL isn't too bad. And the reason they grew, pushing down the Leverage Ratio, was because of the massive influx of deposits that came in over the covid period. People are still parking their money at the bank, though it is slowly being drawn down. Slowly.The board has no appetite to raise new capital and grow their way out of this. I think that in the case of a community bank, all those guys want is their dividends. Slow and steady income. They don't want to rock the boat by pursuing growth. So our fearless CFO is sent by his Board to tell the FDIC, "Sorry, it's going to stay below the 8% Leverage Ratio for a while as we let those 3% coupons pay off. Credit risk is low, deposit base is stable. This will cure in the next 3-5 years."EVERY BANK is facing this same dilemma, in one form or another depending on their asset mix. Food for thought. This is the moment we are in. The biggest risk factor is if deposits start to fall, and banks have to liquidate underwater bonds to fund the withdrawals. Huge losses. Just look at the chart. Same exact situation as happened to SVB. Interest rates have consequences.#fedpolicy #riskmanagement #interestrates

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99% of people I talk to have questions about what’s going on in banking right now. And most importantly, how it will affect them. Our team of Private Bankers are happy to discuss the strength of MidFirst Bank, what you can do to be informed in your own finances, and how that makes it easier for you to do business with us right now. If you have questions, we’re here to help. #wealthmanagement #wealthbuilding

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