Michaud's deposit thesis returns the funding to banks, not necessarily the credit risk

Deposit funding and credit risk are separate problems sitting on opposite sides of the balance sheet, and Michaud's argument is built on the first while being read as an answer to the second. His mechanism is stated plainly: the era of zero and near-zero rates is probably over, and as rates rise the focus turns to deposits, which along with payments he calls the magic of the banking system ^[3][4]. That is a claim about funding. A loan's credit risk stays with whoever owns the loan, so lending only returns to examined balance sheets if banks take the assets back, not merely the cheap money. The interview puts no figure on how much lending left the banking system after 2008, and none on how much returns.

The leverage explains why bankers treat funding as fate. Most banks lever capital 12 to 1 ^[10], which puts capital at roughly 8.3% of assets and means about 92 cents of every dollar lent is somebody else's money, most of it deposits ^[18]. Lending capacity is rationed by deposit gathering, so a funding outflow is not an inconvenience to be managed over quarters. It reaches the asset side in days.

Rising rates do not obviously settle that question either. Michaud's own phrasing has the focus turning to deposits as rates climb ^[3], which describes deposits as the contested resource rather than the reliable one. And his remedy has never been purely cyclical: after the 2023 regional bank failures he testified to Congress on deposit-insurance reform ^[16], a legislative fix for the same vulnerability that higher rates are now credited with soothing.

The timing of the case is worth noting. Michaud dates the conversation to August 2026 and describes an economy he calls strong and robust, with the banks reporting strong loan growth ^[5]. That is the setting in which a deposit-advantage argument is easiest to make and hardest to test, since the advantage he names consists of protections that only register when funding turns scarce. What would falsify it is not deposit balances but loan books, and specifically whether credit underwritten outside banks during the low-rate decade ends up on supervised balance sheets or simply stays where it was funded.