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US banks distress

The banking crisis the US is experiencing is not over yet. After years of #zirp, banks balance sheets will need time to rinse low yielding assets to be able to attract deposits. The chart below offers perspective as to how far is the sector from equilibrium. In the upper half of the chart you can see the yield curve spread between 3M rates and the US 10Y Treasury yield. The black line uses the 3M Treasury bill, the purple one uses an average of 3 month bank deposit rates. The black line represents the market rates, while the purple represents the distorted extremely low rates banks are offering thanks to the subsidy offered by the #btfp and #fhlb programs. The black one is signaling distress in the markets (inverted yield curve) while the purple one would signal a normal scenario if looked in isolation. In the context of the black line, it shows most banks would be bankrupt if it wasn’t for federal aid.

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