cgh1999 said:
Liquidity is going to be a MAJOR issue for every bank. Every bank I know is desperate for deposits to fund their loans and/or bond portfolios.
It won't just impact highly leveraged banks, but also conservative banks. The cost of deposits for many banks exceeds the return on their securities portfolios. So, they'll either lose money on the negative arbitrage or sell securities to avoid that. Which will further devalue their securities.
Leveraged banks (high loan to deposit ratio) may fare better assuming their loan portfolio is primarily floating rate debt. They'll still make money as long as their loans perform.
Which brings us to door #3. Mega cap REiTs are turning the keys over. Which means the little guys are in trouble. Which means their lenders are going to struggle.
Which brings us to door #4. Quantitative easing and government stimulus. The two things that put us into an inflationary environment will be the tools used to bail out the Banks after the economy gets crushed.
Folks - our country is addicted to crack. I don't think we have the stomach to hit bottom and have a true recovery.
Great commentary and puts into light some of the conversations I've been having with loan officers. All the smaller banks we do recourse lending with have started being way more aggressive with their deposit requirements. One of the more amusing ones was the LOI requiring that we deposit 80% of the loan balance prior to closing. Bridge lending is getting fairly ridiculous with SOFR+ requirements with no ceilings, and when I've explained that leaves us open to risk of ruin, the banks have not any answers to what will happen to us and the bank if Jerome Powell doubles the cost of debt mid project.
It seems like you're in the industry, so that can explain it like I'm five on the floating rate? My assumption was that the bank tries to match terms with my fixed rate debt, and makes their money on the spread.
