Both of these GSEs have been told by Congress to decrease their debt loads and at this point have only about 40 percent of the outstanding borrowings compared to 2013. In aggregate, the investment sector known as “agency securities” has shrunk by about 40 percent in the last decade, as FHLB borrowings also remain well below their 2008 peak. Add to this the nite quantities of mortgage securities and municipal bonds, and we have a xed-income market that is very stable from the standpoints of liquidity and incremental yield spreads.
Trending up Happier times now prevail in the community banking industry. About the only negative for community banks in the current zeitgeist is that their investment portfolios have
declined in value. What I hasten to remind investors is this represents a myriad of opportunities. First and foremost is that the bond portfolio’s yield is about to go up. Getting there may take some time, as many banks’ liquidity stockpiles are low, but remember that’s a reason that bank earnings are at record levels. More immediately, bond swaps that remove some below-market yields and replace them with higher yielding investments can speed up that process. Your tax accountant would be pleased, as you’d effectively be deferring the payment of income taxes into future periods. Periods during which, hopefully, industry pro tability will remain strong. So, in summary, community bankers are enjoying the fruits of their efforts. These efforts include
ABOUT THE AUTHOR
Jim Reber is president and CEO of ICBA Securi es, an ins tu onal xed income broker/dealer, and can be reached at 800- 422-6442 or jreber@icbasecuri
es.com.
sound business practices, wise investing and steadfast advocacy. Here’s hoping for another decade of success for community banking.
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