Today's Quarterly FDIC data release was cheered by many on the basis that US banks made the most money ever ($40.6bn) in Q1 which must mean something positive, right? With rates low, spreads low, margin high, and collateral in short supply, where all these profits coming from? The following chart, which may make some nauseous in its simple and direct clarification of just how blind we have become to what is going on, has the answer. Simply put, bank earninsg have soared on the back of nothing less than a total collapse in loan loss provisions (LLPs). In fact, LLPs are now at their lowest levels since the peak of the housing bubble (and as we showed yesterday here and here, a bubble this is) - at a level of reserves that suggest the banks believe 'It' never happened. The delusion continues...

Of course, why would the banks reserve against loan losses? The Fed has their back - if not the Fed, then the Treasury... still think these are fortress balance sheets? Well,

...and capital ratios are rolling over...

Charts: FDIC