FT: Basel III impacts small banks

...The Basel III reform package requires banks to hold enough easy-to-sell assets to weather a market crisis, thereby driving up the internal cost of business lines that tie up liquid assets, including payments services.

FT: 2.3bn liquidity gap for largest banks

FT: Fed extends central bank swap lines to August

...At present only $60m of the swap lines are in use but as much as $9.2bn was drawn down in May this year when stress on the European banking system was at a peak. Overall usage of the central bank swap lines peaked at the height of the financial crisis in December 2008 when foreign central banks drew on $583bn in dollar funding.

FT: US Treasury yields on 2010

FT: yield spreads and the business cycle

US 2 year Treasury

...Since the Fed started buying, something odd has happened: the yield curve has flattened dramatically, reversing almost all of the August-November rise in the past month. The gap is still high, at 112bp, but bang in line with where it stood 18 months after the two previous recessions...

Yet, it is worth noting the tight link between the Fed funds target rate for overnight interest rates and the steepness of the yield curve. On this basis, perhaps the widening gap between 10-year and 30-year yields was simply down to talk of QE3, which improving economic data make less likely.

If past trends continue, the narrower gap suggests a rate rise in six months – when QE2 is due to end.

FT: BlackRock foresees growth

FT: ECB increases bond purchases