TED Spread Back At 2004 Levels

Remember the TED spread? It measures the difference between the cost of capital for the government and for banks. It spiked during the crisis (when the solvency of all banks was in question) but as noted by Wells Fargo and Bloomberg (via Pragmatic Capitalist), it’s now back at 2004 levels.

So, is this a sign of complacency, seeing as risks to the financial sector remain? Not really. The TED spread is just telling us what we already know: Until further notice, no major bank shall fail and they will be backed up by the government in the event of a crisis.

Unless you believe otherwise — i.e., you believe the government would let them collapse — there’s not much reason they should be paying more for funds than the government does.

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