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The Beta Trap: A Significant Earnings Problem, Hidden in Plain Sight Webinar


Funding costs are skyrocketing in the early part of 2023. Many banks in the United States could be facing a significant earnings problem. Our analysis suggests more than 1,000 U.S. banks could become unprofitable and they might not be aware of it. To understand the gravity and scale of this problem, we need to re-examine what we think we know about the looming Cost of Funds (COF). We also must explain why nearly all banks? earnings projections are missing this. A different approach reveals the hidden truth.

Key takeaways
• Many ALCO models and other forms of Earnings Projections are not clerly viewing Bank future earnings in any rate scenario.
• COF pressure will likely persist even after the Fed pauses or even eases with rate cuts
• This thesis is supported by Historical Data and Economic Incentive
• Most models miss this reality because of the Beta Trap and misuse of historical data
• Given current market dynamics, Beta driven models have minimal utility and may be greatly misleading decision makers

 Target Audience: ALCO chairs, Board of Directors, CEOs, CFOs