Easy money does not mean easy banking profits. Even so, last week's decision by the Federal Reserve to increase the discount rate at which it lends to banks was hailed as the beginning of the end for bank profitability. In fact, the move is something of a technicality – borrowing under the main discount facility is now about $14bn, down from a crisis-time peak of more than $110bn. Use of the term auction facility, which the Fed has been winding down for some time and will end in March, has also declined.
True, the Fed's zero interest rate policy has kept the yield curve steep. With US banks' average net interest margin at a four-year high, some banks laden with bad assets last year benefited as cheaper funding helped to balance continuing high rates of provisions and credit costs.
But this cannot last. Yields in banks' loan books are already shrinking, notes Institutional Risk Analytics. That worsens the longer rates remain low as assets reprice, and redemptions and charge-offs shrink outstanding loans.