Is a US banking crisis brewing?

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via The Speculative Investor:

Banks becoming suspicious of each other is one of the early signs that a banking crisis is brewing. This suspicion is indicated by a rise in the average interest rate that banks charge each other for short-term financing relative to the interest rate paid by the US federal government for financing of similar duration. For example, under normal (non-crisis) conditions the spread between 3-month LIBOR, a widely used interbank interest rate, and the yield on a 3-month Treasury Bill oscillates between 0% and 0.50%, but when some banks start becoming concerned about the financial strength of other banks the spread breaks above 0.50%.

The following daily chart shows the performance of the aforementioned interest rate spread since early-2006. The Global Financial Crisis of 2007-2009 sticks out on this chart and was signalled by an initial surge above 0.50% during the second quarter of 2007. During the period covered by this chart the only other move to well above the top of the normal range occurred during the March-2020 COVID crash, but it was very short-lived as the Fed acted immediately to ensure that the economic shutdowns perpetrated by governments did not create problems for the commercial banks. Also worth noting is that there were minor signs of banking-system stress in Q4-2011, Q3-2016, Q1-2018 and the first half of 2022 that did not develop into crises.

Importantly, the chart shows that the current spread is close to zero, which means that the interbank market is as calm (lacking in suspicion) as it ever gets.

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