For all the enthusiasm of last week’s banner performance of the Dow Jones Industrial Average and the optimism that European economic leaders will start behaving like, well, leaders, capital costs remain stubbornly high.

In the last month alone, the cost of capital, as expressed by the TED spread, which measures the difference between three-month Treasurys and the three-month Libor rate, is about 21.5% higher to close at 53.34 basis points last Friday. This has continued a steady climb in credit spreads since July 29, when the TED hit 16.4 basis points, its lowest level since last February.

TED SPREAD AS OF 12/2/11

This should be a source of great consternation for bankers. Climbing spreads have a corrosive effect on net interest margins, although bankers in recent years have done much to protect themselves from declining margins in the relative short term. Certainly, this is not going to “get banks lending.” We’ll be watching this week for some positive knock-on effect in spreads from last week’s strong equity performance. We’re sure bankers will be, too.