This article makes no sense to me whatsoever as basically Sheila Bair is advocating banks taking on more long term debt to fund their businesses. The remaining Big 4 banks have robust deposit franchises that fund their business at a low cost. These are not brokered deposits such as companies like Countrywide Financial were reliant on, but instead these are long term deposits with less price sensitivity. While issuing long term debt at such attractive yields would normally make sense, it doesn’t right now in many circumstances because the historically low rates are drastically reducing net interest margins. When interest rates rise, bank profits will rise as well. If the banks were relying on commercial paper or brokered deposits I’d completely agree with this assertion but the biggest banks are over capitalized in my estimation, with excess liquidity, and reducing long term debt makes sense. I really think Sheila Bair has jumped off the deep end with her anti big bank views as this isn’t the first odd assertion from her of late.
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