American Banks to Reap Huge Windfall after Coronavirus Vaccine Breakthrough

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Banks in the United States of America are on track to earn a big windfall from an early vaccine for the new coronavirus after the release of positive trial data from Pfizer and BioNTech steeply expanded the gulf between long and short-term yields.

The economy is now expected to grow at a quicker pace than earlier expected as a widely distributed vaccine permits the lifting of curbs on movement and the brighter economic prospects justifies higher interest rates, which will result in greater income for banks.

Following the steepening of the yield curve, the shares of JPMorgan Chase and Bank of America, two of the big U.S. banks, climbed up by 14 percent on Monday and significantly retained the gains in early Tuesday trade.

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Even more impressive advances in the shares of big regional banks with huge commercial loans in their portfolio were recorded on Monday, with shares in Comerica and M&T Bank rising by 20 percent and 25 percent in that order. Commercial loans often charge a floating interest rate, which automatically adjusts to volatility in market rates.

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Goldman Sachs Chief Financial Officer Stephen Sherr said at an earnings call the vaccine news “will be good for banks” by spurring “reflationary outcomes” and “more slope to yield the curve.”

The substantial move in the bond market might impact improved profits from lending if sustained, according to executives, experts, and estimates by banks.

A closely examined measure of the difference between long and short-term costs of borrowing broadened on Monday on the news from Pfizer and BioNTech, in a move that continued Tuesday morning. The margin between 10-year and 3-month Treasuries was 0.85 percentage points not long ago, the peak since March, and considerably up from an August low of nearly 0.42 points.

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Banks’ profit is measured to a great extent by the difference between their borrowing costs – that is the interest paid by them on customer deposits or from short-term borrowing – as well as the returns on credit. The gap widens when the yield curve becomes steep.