The Beta Trap: A Significant Earnings Problem
Funding costs are skyrocketing in the early part of 2023. Many banks in the United States could be facing a significant earnings problem. Our analysis suggests more than 1,000 U.S. banks could become unprofitable and they might not be aware of it. To understand the gravity and scale of this problem, we need to re-examine what we think we know about the looming Cost of Funds (COF). We also must explain why nearly all banks’ earnings projections are missing this. A different approach reveals the hidden truth.