Rising rates aren’t the salvation US banks were looking for

On the face of it, 2022 was a great year for US banks. The Federal Reserve’s rapid hiking cycle fed into a banking system awash with liquidity: a mix of quantitative easing and fiscal stimulus that had left banks with swollen deposit bases. The parallel impact of all this liquidity was weak demand for credit, and some banks were put in the unusual position of actively declining additional deposits.

Then in the second half of the year came a tightening of monetary policy, and the banks suddenly found these deposits generating some real net interest income (NII).