NEBANKERS.ORG 20 2020 WAS A YEAR OF CHALLENGES IN MANY ASPECTS OF LIFE, business, and the economy. The start of 2021 brought a close to a tumultuous year and opened the door to a year of economic recovery and hope for more normal times. In March 2020, the banking industry was rocked when the Fed funds rate was cut to zero at an unprecedented speed, and Treasury yields tumbled to all-time lows. Additionally, the massive influx of stimulus-related deposits that flowed into the banking system greatly changed the size and structure of balance sheets. As a former bank examiner, I am taking a chapter from my previous regulatory career by looking at the banking industry as it relates to the Uniform Financial Institutions Rating System and its six components, known as CAMELS. Capital — A wise person once told me that capital cures a lot of ills. While this statement is very true, not properly leveraging your capital may leave some additional earnings and shareholder returns on the table. Before the pandemic hit, leverage ratios were very strong, with only 14 banks on the “less than well-capitalized” list. For the most part, leverage ratios haven’t been stressed in the traditional sense with loan losses; however, many institutions have seen a reduction in their leverage ratios as asset growth has dramatically outpaced capital growth. Additional pressure on leverage ratios could continue throughout 2021. Asset Quality — This is likely the biggest unknown of all the components. When the COVID-19 pandemic forced Checking In on the Banking Industry Dale Sheller, The Baker Group
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