Higher Funding Costs Add Stress While Banks Ready Earnings Reports
- Financial institutions are paying more to safeguard dollars
- Earnings will provide fresh glimpse of funding, deposits
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Investors are zeroing in on key parts of the market for short-term borrowing to determine how higher costs are putting the squeeze on the banking system.
With some of the world’s largest financial institutions about to report on their third-quarter performance, funding markets show that banks are starting to pay up to protect their cash holdings from sinking and to safeguard against future runs on deposits. Banks have seen depositors flee in favor of higher-yielding alternatives, such as Treasury bills and money-market mutual funds, and this stress can be seen in the gap between rates for bills and commercial paper compared with those on swaps tracking Fed rate expectations.