As I write this article, it is the beginning of the new year, and I hope it brings us so much more than what 2022 brought us. Specifically, it brings us a more favorable position for our securities portfolios. At one point last year, we saw the 10-year U.S. government treasury have the largest drop since 1788 — that made for yet another historic year for our economy. The Federal Reserve, based on its December minutes, is looking to hold tight to its policy of higher rates for longer to fight inflation, which will also have an impact on our securities portfolio values.
Held-for-sale bond portfolios for many banks are experiencing crushing losses. The change was dramatic, with the 10-year treasury starting at 1.83% and heading to 3.83% at year-end. I have heard a lot of strategies tossed around depending on the portfolio’s duration and each bank’s liquidity needs. If your bank needs the funds, losses may have to be locked in with the sale of the bonds. Others, who don’t need to sell, may look to add some purchases to take advantage of any possible declines coming later in the year and blend their exposure. A few banks plan on doing nothing and weathering the storm, allowing the bonds to mature.
Beyond the concerns of the impact to our balance sheets, there are always regulatory considerations. Thus far, I have not heard of any regulators pushing any prescribed solution. Instead, they have asked us to document and monitor as closely as possible. I hope they continue to be accommodating.
I am not a securities expert, and this is a lot of information to process. We are fortunate, as members of the MIBA, to have a lot of great resources we can turn to for advice, such as the vendors working with the MIBA who are always happy to help. If you do not currently work with them, please contact the MIBA offices, and they can let you know who the preferred vendors are for your specific needs. Another resource is our membership. We have all experienced these issues, and we can work them out together. I highly encourage you to attend one of the many extraordinary MIBA meetings. The Directors and Officers Conference later this spring will be an excellent opportunity to discuss our securities portfolios.
