Charting The Biggest Structural Problem For US Banks, And What The Market Expects From Jackson Hole, Version N+1

What this chart demonstrates is that banks, whose liabilities (deposits) are collateralized with IOER-interest bearing reserves, will sooner or later be forced to transform these holdings into risky loan-based assets. The question is whether there is enough cashflow-worthy collateral to absorb this transformation of about $1.7 trillion in fungible money. It also means that endogenous risk in the banking system will spike if and when the Fed weans banks to pull away from the safety of the IOER window, and into the far riskier, and far better paying real world.

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