The SBA PPP Liquidity Boost
By: Aaron Stoffer
To say our current situation is interesting would be a complete understatement. We all know about the SBA PPP initiative and why it happened. However, one thing we did not expect as a side effect is the massive amount of liquidity that hit our banks’ balance sheets. In fact, in the last ten weeks, U.S. banks saw almost $2 Trillion of cash inflows, according to Bloomberg.
Many who borrowed through the program ended up putting the money in their deposit accounts instead of spending it. Additionally, we are now getting to the point in many of those SBA PPP loans when the government will begin forgiving them, which will pay off the loan, but the deposit will likely remain. This begs the question, how long can we expect to retain the excess funding? Of course, only time will tell.
In the meantime, what do we do with all the additional liquidity? Leaving it in cash will only depress interest margins. While we are still unsure of how long the current economic conditions will last, we do know one thing; dollar cost averaging is a tried and true investment strategy. Invest in strong credits and pay close attention to your interest rate risk profile. Knowing your interest rate risk profile and making decisions that are consistent with your interest rate bias will put you in the driver’s seat for determining long term profitability. If you are unsure of what your rate bias is, or if you are not comfortable with your model, both AMG and the Capital Markets Group are available to have a conversation on both topics. Just know that you are not alone in this sudden surge of liquidity and you do not need to go it alone to figure out what to do with it.
This information is intended for institutional investors only. The material provided in this document/presentation is for informational purposes only and is intended solely for private use. Past performance is not indicative of future results. This material is not intended as an offer or solicitation for the purchase or sale of any financial instruments.
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