The delinquency rate on commercial and industrial loans is rising.
The slope of the line is significant. Compare it with the slope of the line before other recessions.
Bankers have a way out: switch money to excess reserves at the FED. But this pays only 0.5%. The banks need a higher rate of return to keep their doors open.
They are trapped by low rates on Treasury debt. They can go with 30-year T-bonds, but there are not enough of them out there to let the industry keep paying depositors.
This is another warning of the coming of negative interest on deposits.
Banks are facing the same squeeze that the insurance industry is facing. They need income. When delinquency rates rise, they need even more income. But where can they get it? They can seek out new borrowers. But these will have to be borrowers who did not qualify for loans before. They will be higher-risk borrowers. Yet the banks are facing rising delinquency rates from the "good" borrowers who did qualify.
As the chart shows, there is no way out for the banks. In all previous cases of delinquency rates rising at this rate, there has been a recession.
The recovery is weak. Excess reserves are high. This holds down price inflation, but it also holds down economic growth. Economic growth is under 1% per annum. What happens if it turns negative? Delinquency rates will rise. This is a classic vicious circle.
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