“One immediate impact of the failure to raise interest rates is that it caused the value of bank assets to rise and it improved real book values. This is because an estimated 92 percent of bank assets are financial instruments. If interest rates remain stable or decline slightly, the value of these assets rises in real terms. This improves banking industry book value,” said Dick Bove of Rafferty Capital Markets in a note cited by Jeff Cox of CNBC.
And when it comes to higher interest rates bolstering financial services ETFs such as XLF, the good news is that the number of traders betting that the Fed will boost borrowing costs following its December meeting has climbed in recent days. Options traders are buying into the notion of higher rates benefiting bank stocks.
“It’s that a single rate increase isn’t likely to deliver sharply better results for banks. At best, moving the overnight target rate a quarter of a percentage point higher could put an end to the deterioration of net interest margins that has afflicted banks for several years now,” adds the Journal.
Financial Services Select Sector SPDR
