Pub. 10 2020-2021 Issue 5

O V E R A C E N T U R Y : B U I L D I N G B E T T E R B A N K S — H E L P I N G C O L O R A D A N S R E A L I Z E D R E A M S www.coloradobankers.org 16 BY SCOTT HILDENBRAND, MANAGING DIRECTOR | HEAD OF BALANCE SHEET ANALYSIS AND STRATEGY, HEAD OF PIPER SANDLER HEDGING SERVICES Tactics for Navigating Tectonic Shifts in Liquidity T his year has presented bank management teams with a multi- tude of issues to juggle, many of which seemingly pull in opposing direc- tions and most of which were not firmly on the radar to start the year. Such is life in 2020. Some banks’ primary con- cerns stem from the fact that the indus- try has seen a shift in liquidity. Balance sheets are awash with deposits relative to recent periods, while securities hold- ings have come down relative to assets. The build-in balance sheet liquidity has come in the form of cash, with an un- usually high 7.6% of assets held in cash and equivalents as of June 30. This drastic change in the liquid- ity picture is best encapsulated by the Cash and Unencumbered Secu- rities-to-Assets Ratio’s significant uptick. The ratio has surpassed the av- erage over the past 14 years of 20.6%, steadily climbing toward the high of 24.7% last seen in 1Q13. While every institution is unique, many banks have responded to the shift in liquidity by asking two questions: how does this affect the asset side, and what are the options on the liability side? On the asset side, management teams wonder what to do with excess cash in a world where most bond yields Source: S&P Financial, Banks and thrifts with assets between $250 million and $25 billion