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The Fed's Plan For U.S. Banks Should Reduce Contagion Risk

NEW YORK (S&P Global Ratings) March 13, 2023--The Federal Reserve's new emergency lending facility for U.S. banks should help address bank liquidity pressure and reduce the odds that unmanageable deposit outflows spread widely, said S&P Global Ratings today.

Our base case is that the Fed's new measures reduce the odds that unmanageable deposit outflows spread widely. The measures also leave the banks better equipped to handle liquidity outflows should they occur. We believe the Fed's measures are robust and that the banking system otherwise continues to look resilient, as measured by banks' regulatory capital, asset quality, and earnings, among several other metrics.

That said, despite the new Fed facility, the heightened confidence sensitivity in recent days may have led to an erosion in franchise value of some banks. We are also unsure whether depositors will immediately react to the Fed's announcement by halting any deposit outflow they had previously planned.

Some of the key metrics, among others, we are monitoring are (see table):

  • Uninsured deposits as a percent of total deposits;
  • Deposit growth that occurred when the Fed was quantitatively easing;
  • Deposit outflows in the second half of last year, to date this year, and going forward;
  • Cash as a percentage of assets--the first line of defense against deposit outflows and a means of helping to manage interest-rate risk and earnings;
  • Tangible common equity, tangible equity, and unrealized losses on securities;
  • Trajectory of net interest margin to help gauge profitability; and
  • Return on equity to assess profitability.

Fed's Move To Shore Up The Banking System

The Fed announced over the weekend an emergency lending facility and other support measures for U.S. banks. Specifically, the Fed's Bank Term Funding Program (BTFP) will make loans of up to one year to eligible federally insured depository institutions, taking collateral in certain types of securities with margin at 100% of par value. The rate the Fed will charge for this facility will be the one-year overnight index swap rate, currently at about 5.3%, plus 10 basis points.

In addition to the BTFP, the Fed said the discount window remained open to eligible borrowers at the same margins used for securities in the BTFP. In other words, it appears the Fed is willing to lend at 100% against eligible collateral. Lastly, the FDIC said all depositors, including uninsured depositors, of the failed Silicon Valley Bank and Signature Bank would be fully repaid.

Banks And Bank Holding Companies By Select Metrics (Fourth-Quarter 2022)
In alphabetical order
(%) Uninsured deposits/domestic deposits Cash/assets Deposit growth 2021 Deposit growth June 2022-December 2022 Tangible common equity (TCE)/tangible assets (TA) (TCE - unrealized loss on HTM securities)/TA Tangible equity/tangible assets CET1 ratio Q/Q NIM change 4Q 22 Return on equity 4Q 22
Median 48 5 10 (1) 6.6 5.7 7.1 10.8 0.15 13.1

Ally Financial Inc.

12 3 3 8 5.0 4.9 6.3 9.3 (0.18) 8.7

American Express Co.

18 15 (3) 14 8.6 8.6 9.3 10.3 (0.09) 24.4

Associated Banc Corp.

53 2 7 4 7.0 5.5 7.5 9.4 0.17 10.9

Bank of America Corp.

47 8 15 (3) 5.8 2.2 6.8 11.2 0.15 10.5

BOK Financial Corp.

61 3 14 (11) 7.6 7.3 7.6 11.7 0.32 12.3

Cadence Bank

50 4 103 (3) 5.4 5.4 5.8 10.2 (0.03) 9.2

Capital One Financial Corp.

24 7 2 8 7.5 7.4 8.5 12.5 0.04 9.4

Citigroup Inc.

77 14 4 3 6.6 5.6 7.4 12.2 0.08 5.0

Citizens Financial Group Inc.

49 5 5 1 6.1 5.7 7.0 10.0 0.06 11.2

Columbia Banking System Inc.

39 4 8 4 7.8 7.8 7.8 11.0 0.13 13.6

Comerica Inc.

62 8 13 (6) 4.9 4.9 5.3 10.0 0.24 26.5

Commerce Bancshares Inc.

42 3 11 (7) 7.3 7.3 7.3 14.1 0.18 22.2

Cullen/Frost Bankers Inc.

54 22 22 (4) 4.5 4.1 4.7 12.9 0.30 25.8

Discover Financial Services

9 7 (6) 20 10.1 10.1 10.9 13.3 0.04 28.2

East West Bancorp Inc.

66 6 19 3 8.7 7.8 8.7 12.7 0.28 23.1

F.N.B. Corp.

46 4 9 4 7.2 6.2 7.5 9.8 0.33 9.6

Fifth Third Bancorp

52 6 6 2 5.0 5.0 6.1 9.3 0.14 17.5

First BanCorp

48 3 16 (6) 6.8 6.8 6.8 16.5 0.06 22.6

First Citizens BancShares Inc.

33 5 18 0 7.6 6.3 8.4 10.1 (0.04) 10.7

First Commonwealth Financial Corp.

26 2 7 (1) 7.8 7.0 7.8 11.1 0.21 13.7

First Horizon Corp.*

47 3 7 (10) 7.1 6.9 8.4 10.2 0.38 13.1

First Republic Bank

68 2 36 7 6.4 4.2 8.1 9.2 (0.26) 8.9

Hancock Whitney Corp.

50 2 10 (3) 7.1 6.4 7.1 11.4 0.15 17.8

Huntington Bancshares Inc.

56 4 45 2 5.5 4.2 6.7 9.4 0.08 14.8

JPMorgan Chase & Co.

53 16 15 (5) 5.9 4.9 6.6 13.2 0.34 15.3

KeyCorp

52 2 13 (2) 4.4 4.0 5.7 9.1 0.01 12.0

M&T Bank Corp.

48 13 10 (4) 7.6 7.0 8.7 10.4 0.39 12.1

Morgan Stanley

30 9 12 3 5.8 4.9 6.6 15.3 (0.08) 8.9

Northern Trust Corp.

83 30 11 (7) 6.2 4.8 6.8 10.8 0.05 5.7

OFG Bancorp

41 5 2 (5) 9.6 8.9 9.6 13.6 0.43 18.1

Popular Inc.

51 9 18 (6) 4.8 4.7 4.9 16.4 0.00 16.7

Regions Financial Corp.

37 8 14 (4) 5.6 5.5 6.7 9.6 0.46 17.7

River City Bank

59 4 10 6 8.7 8.7 8.7 11.2 0.25 13.3

S&T Bancorp Inc.

34 2 8 (5) 9.2 9.2 9.2 12.8 0.28 13.8

Sallie Mae Bank

4 17 (8) 7 8.1 8.1 8.1 12.9 0.08 (0.8)

State Street Corp.

91 35 6 (3) 4.9 2.5 5.5 13.6 0.18 11.5

Synchrony Financial

11 10 (1) 11 9.5 9.5 10.3 12.8 0.27 17.7

Synovus Financial Corp.

51 3 6 (0) 5.8 5.8 6.7 9.6 0.10 19.2

Texas Capital Bancshares Inc.

59 18 (9) (10) 9.7 9.3 10.7 13.0 0.29 28.4

The Bank of New York Mellon Corp.

93 28 (6) (14) 4.4 2.8 5.6 11.2 0.14 5.4

The Charles Schwab Corp.

21 6 24 (17) 1.2 (1.5) 3.0 21.9 0.31 21.8

The Goldman Sachs Group Inc.

48 17 40 (1) 6.8 6.7 7.6 14.4 0.04 4.5

The PNC Financial Services Group Inc.

45 6 25 (1) 5.2 4.3 6.3 9.1 0.07 13.4

Truist Financial Corp.

45 4 9 (3) 4.4 2.5 5.7 9.0 0.13 10.9

Trustmark Corp.

40 4 7 (2) 6.3 5.8 6.3 9.7 0.16 (9.1)

U.S. Bancorp

52 8 6 12 4.3 2.6 5.3 8.4 0.18 7.5

UMB Financial Corp.

75 4 32 4 6.2 4.7 6.2 10.6 0.05 15.3

Valley National Bancorp

33 2 12 9 7.5 6.6 7.9 9.0 (0.02) 11.2

Webster Financial Corp.

41 1 9 2 7.4 6.2 7.8 10.7 0.20 12.3

Wells Fargo & Co.

52 8 6 (3) 7.2 4.9 8.2 10.6 0.32 6.4

Zions Bancorporation N.A.

53 2 19 (9) 3.8 4.0 4.3 9.7 0.28 23.7
Note: For bank holding companies, uninsured deposits are sourced from the call reports of their subsidiary banks and compared to the domestic deposits of those subsidiaries. Because of intercompany deposits, our metric in some cases may overstate the percentage that is uninsured at the consolidated company, though disclosures vary. For Capital One, we have based the ratio on its disclosure of uninsured deposits in its 10-K report. *The rating on First Horizon Corp. is unsolicited. HTM--Held-to-maturity. CET1--Common equity Tier 1. Q/Q--Quarter over quarter. NIM--Net interest margin. Source: S&P Global Ratings based on regulatory data collected by S&P Global Market Intelligence.

Related Research

How Unrealized Losses On Securities Affect U.S. Bank Ratings, Dec. 13, 2022

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