US equity markets are continuing to price in higher premiums for bank shares relative to the overall market. The increased steepness of the yield curve will mean higher net interest income, as banks borrow at historically low rates from depositors and lend longer term at the highest rates in two years. The chart below compares the S&P bank index (KBE) with the S&P500 index (SPY) over the past 5 days.
Not only are banks increasing the longer term rates at which they lend, but they also have lowered rates they pay on various types of deposits.
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| Checking accounts that pay interest (source: Bankrate.com) |
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| Money market accounts (source: Bankrate.com) - Note: these are bank savings accounts, NOT money market funds |
Even without growing their balance sheets - and for now US banks' balance sheet growth has stalled - banks can improve their margins simply through lower interest expense. That's part of the reason for bank share ongoing outperformance.
In the mean time, in spite of higher rates elsewhere, US savers are hurting.
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