TED spread almost back to normal

The TED spread is now down to 54 basis points, only modestly above its median level over the past 20 years of 38 bps. Almost all of the decline has come from a reduction in Libor, which reflects a tremendous increase in banks' confidence in each other. TARP and liquidity injections have undoubtedly been a major factor behind the improvement, but it is also clear that many banks are once again profitable in their own right, and a goodly number are very interested in paying back their TARP funds in order to escape the government controls that came with them. If there is anything good to say about the TARP program it is that it has taught the banking industry an important lesson: government assistance comes with big strings attached. Ask for it at your peril.