According to the FHFA, over $12 trillion in unpaid principal remains on residential mortgage loans, and 20% of that balance carries interest rates under 3%. Many homeowners behind these mortgages intend to stay in their homes and can afford to because of their ultra-low mortgage rates. But some want to move and are locked in. Being locked in is bad for them, but it is not any better for bank treasurers, who would love nothing more than to help their borrowers move and are nervous about their funding costs going up. But what if there were a compromise that could get them to move? Read on to learn more.

Kevin Warsh told the press he wanted a “family fight” over raising interest rates to combat persistent inflation above target. But it is hard to see what the big fight is over 25 basis points, especially given the inflationary effects of the federal deficit, which creates more than $2 trillion in new money every year. The only clarity in financial markets is that no one seems to have a good read on the economy, its direction, or the appropriate monetary policy response to persistent inflation. To understand what makes the 17^th chairman of the Federal Reserve think, look to his role model, the late Fed chairman Alan Greenspan, who shrugged off market bubbles that led up to the Dot.Com bust and then the Global Financial Crisis, but also intervened in the collapse of Long-Term Capital Management and was known for the “Greenspan Put.” 

Walt Whitman wrote the poem “I Hear America Singing” in 1860, a time when it must have been hard to hear anything over the beating drums just ahead of the Civil War. But today, bank treasurers not only hear America singing songs of AI, data centers, senior centers, gyms and a resilient economy; they are singing about their strong earnings and prospects for the good times to continue. And they are singing about regulators who are now trying to make their jobs easier, and about FASB writing standards that better align with the economics of hedging and mergers and acquisitions.

The bond market in 1972, when Marty Leibowitz co-wrote “Inside the Yield Book” with Sydney Homer, was vastly different from today. Back then, traders didn't use AI or calculators for pricing; they relied on printed yield tables, pencils, and paper to set their bids and offers. However, the fundamental bond math described in the book remains unchanged. If interest rates rise later this year as bank treasurers anticipate, the role of interest on interest in earnings projections will be just as significant as it was in their day.

Tune in to this month’s episode of the Bank Treasury Murder Mystery series to help solve the case of a dead bank treasurer, a Treasury bond, and an empty safe. On February 22, 1878, J.W. Barron went to work and never came home when bank robbers hit the Dexter Savings Bank in Maine. Join your co-hosts, Janet and Sheila, as they piece together what happened that day in the late afternoon and connect the post-Civil War bank-treasury landscape, a Gilded Age of depressions, bank runs, panics, gold rushes, greenbacks, and bank notes, to today’s era of the K-shaped economy and the stablecoin. 

Bob Dylan turns 85 next month and is still performing for large audiences. More than 50 years ago, when he sang about shelters from the storm, he probably did not have the dollar's reserve status or the Federal Reserve’s balance sheet in mind as a shelter. But the Fed is a bank treasurer’s shelter from the storm. The nominee to take Chair Powell’s seat when his term ends next month wants to shrink it, and this month’s newsletter and chart deck discuss how he plans to do so.

With everything happening — the war, political uncertainty, Fed uncertainty, market volatility, tech issues, and now NDFIs getting in trouble — it's understandable if bank treasurers feel like they're in a bad dream. But it's real and only adds to the complexity they face when trying to figure out liquidity and asset-liability management in the context of instant payments. They also appreciate the shift in tone from bank supervisors who are committed to making their jobs easier, though they still need to understand their evolving landscape as consolidation accelerates and new entrants, including industrial loan companies and stablecoin-issuing fintechs, reshape the competitive environment.

Is the President’s nominee to chair the Fed a hawk, a dove, or some other kind of bird? On safari this month, your editor in chief had many different species to consider while weighing the nominee’s positions on fighting inflation, the Fed’s balance sheet, and independence. There was much more to think about than some baby zebra or wilderbeest’s life and death struggles against a cheetah in the Serengeti. In a land of the survival of the fittest, thanks to great cellular service, who could ignore the life and death struggles of our bank treasury subscribers, who now need to worry about the stablecoin-issuing trust banks and industrial loan companies that the OCC and FDIC just approved. Then there was the small Business Administration news that it is making it easier to form Small Business Investment Companies, Then there was the Miki Bowman news on regulatory capital changes for mortgage loans and mortgage-servicing assets. And, if that were not enough news to keep your editor in chief focused on work on his vacation, merger mania continued and a small community bank failed.

It is always End Times in the bank treasury world, but bank treasurers just soldier on. As this month’s newsletter discusses, bank treasurers face unprecedented uncertainty, are ever more challenged by fintechs and nonbank financial institutions (NDFIs) trying to muscle in on their traditional business, are still struggling to manage liquidity with their bond portfolios still deep underwater, and they are worrying about stablecoins and how they could potentially disintermediate them from their deposit funding. The Fed faces an unprecedented assault on its independence, while officials cannot even agree on the right course for monetary policy.

AI is the future, and the future is now, at least it is one of next year's top priorities for every bank treasurer at large and small banks and credit unions. The question is how? How do you implement AI? The answer to that question is another question: what do you want to do with it? Answering that question is not the IT department's or the intern's responsibility. The use cases need leadership at the top to decide and see implementation through if pilot projects are ever to yield the productivity gains the technology promises.