Though banks shed their MBS holdings by a considerable $41 billion in the third quarter (after adding $132 billion in Q203), researchers expect a strong rebound in bank mortgage purchases for the fourth quarter.
Credit Suisse First Boston stated in a report that the previous rise in MBS purchases by banks has been hand-in-hand with declines in corporate and investment (C&I) loan holdings. CSFB predicts that banks will remain involved in the MBS sector even with economic recovery and C&I loan demand picking up. C&I net debt growth rate is estimated to be negative $200 billion by CSFB. For an en masse movement away from MBS, C&I loan demand will need to increase at a rapid pace, wrote analysts.