Bank examiners, as depicted in the 1946 movie, “It’s a Wonderful Life,” are a rare breed of smart, dedicated public servants whose job has always been to keep the financial system safe and sound. As the complexity and risks of running a bank increase with the introduction of cryptocurrencies such as stablecoins and the move towards tokenization, the need for these examiners has never been greater. Yet, bank supervisors are leading a reduction-in-force that will further strain resources.

May was another month of uncertainty and market volatility, which continues a trend that bank treasurers have seen for longer than they can remember. In challenging times like these, bank treasurers prefer to sit in the bunker, holding cash, which is nothing different from what they have been doing for years. Hedging for rates down but unsure if they should be worrying about a rate-up scenario, bank treasurers take no comfort in the fact that Fed officials also continue to express uncertainty about the economic picture and the likely path for rates.

The earnings outlook for banks is encouraging just judging by Q1 2025 results, but the industry’s message to investors this month was that anything can happen and the rest of the year and all the key performance indicators they track are just too hard to predict. Bank treasurers continue to face a challenging landscape to navigate and a lot of risk they need to manage. They are sitting on a lot of cash waiting for clarity, but they are also studying the capabilities of the latest AI technology to improve their decision-making capabilities.

The banking industry continues to ramp up investment in GenAI and machine learning technology. While AI probably will never replace humans as the ultimate decision-makers, it offers to help them make better, more informed decisions. This month, the newsletter’s editorial staff decided to test out the state of this technology and created Jay AI, our very own Jerome Powell bot. The editor-in-chief posed key questions to see what it would answer on topics that bank treasurers have on their minds about interest rates and the economy, the future of bank supervision, and the direction of the Fed’s balance sheet.

Zeno was a Greek philosopher who lived 2,500 years ago and argued that no matter how far one goes in any one direction, no one gets anywhere. Distances and speed are an illusion as he views the world. If alive today to advise bank treasurers, he would advocate long-term buy-and-hold strategies. Likely, Zeno would have been no fan of short-term, relative value trade ideas and legacy asset restructuring proposals, believing they did not create shareholder value. His advice would be, as difficult as it is for bank treasurers, given the significant unrealized losses on their balance sheets, to sit with low-yielding assets below their marginal cost of funds and let them run off rather than pursue short-term fixes that still leave them no better off in the long run.

The Fed’s conduct of monetary policy has been very wanting lately, given that its rate cuts last fall caused the 10-year Treasury to sell off and made bank treasurers wonder whether the Fed has a handle on interest rates or the economy. Even though bank treasurers appreciate a normal sloped yield curve, this was the first time in 40 years when the Fed’s rate cuts caused the yield curve to bear steepen. Not only are treasurers saddled with negative AOCI, but they are also earning 100 basis points less on their cash pile at the Fed.

People celebrated the end of Prohibition 91 years ago this month. But while they were partying in the streets, Congress was busy passing a new kind of prohibition on the banking industry against reckless behavior that endangered the financial system's stability and the economy. Since Glass-Steagall, lawmakers and rule makers have gone back and forth at once, easing and then tightening regulations responding to alternating demands by the public that rules and regulations were either stifling or ruining the economy.

Bank treasurers have more in common with the Mayflower Pilgrims than they might first think. Like the Pilgrims, they are surrounded and outnumbered by loan and deposit officers, bank customers, examiners, and shareholders. Armed with muskets that left a deep impression on the native tribes, the Pilgrims ultimately survived through diplomacy. Bank treasurers may not go to work armed with muskets, but like the Pilgrims, they need buy-in with all parties, internal and external, critical to delivering stable NIMs and growing NIIs.

This month is the 20th-anniversary issue of the newsletter. In this edition, we look back at some of the major stories we have covered in the world of bank treasury. From rate cycles to accounting issues, Basel capital, AOCI, mark-to-market, and hedging, we delved into bank treasury investment strategies, trends in deposit balances and betas, and cost of funding. We covered the transition from LIBOR to SOFR and from incurred loss to CECL accounting. Over 20 years, bank treasurers have seen it all, from the GFC to the regional bank crisis last year, from the repo panic in September 2019 to the mini panic over the recent month-end. We have been there when the yield curve was positively sloped and inverted. This is where bank treasurers go to read all about it.

The forwards might already have priced in the 50-basis point cut this month, but for many bank treasurers, the move by the FOMC this month was a surprise and a bit unsettling, worried that the voting members might see something terrible on the horizon that they do not see.