The four most dangerous words in investing are: 'this time it's different’ Sir John Marks Templeton Sr. This week has been Central Bank Week on financial markets, with interest rate decisions from the Reserve Bank of Australia, the US Fed, and the European Central Bank.
I heard it the first time from Andreas Steno and I really like his term “artificial steep yield curve”. He means that even when the yield curve is highly inverted, banks can create their own “artificially steep yield curve”, by keeping deposit rates close to zero and lending longer term.
I think that European banks might not have the same deposit flight issues that American banks face, as in the US you can just download an app called TreasuryDirect and buy US treasuries very easily. I’m not aware European depositors have the same option. I also think the avg European depositor is less aware of the money market option compared to a US depositor. Hence, European banks are in a luckier situation vs US banks. Also the recent bank test was showing that a 200bp increase in rates leads to a decrease of capital only of about 5% on average (200 banks were tested)
I heard it the first time from Andreas Steno and I really like his term “artificial steep yield curve”. He means that even when the yield curve is highly inverted, banks can create their own “artificially steep yield curve”, by keeping deposit rates close to zero and lending longer term.
I think that European banks might not have the same deposit flight issues that American banks face, as in the US you can just download an app called TreasuryDirect and buy US treasuries very easily. I’m not aware European depositors have the same option. I also think the avg European depositor is less aware of the money market option compared to a US depositor. Hence, European banks are in a luckier situation vs US banks. Also the recent bank test was showing that a 200bp increase in rates leads to a decrease of capital only of about 5% on average (200 banks were tested)