NEW YORK - June 24, 2010 - Deutsche Bank has a new and improved index of U.S. financial conditions, and this index just slumped back towards the lows of our recent crisis.

Financial conditions appear to have worsened substantially in recent quarters based on our update of the broad index of U.S. financial variables presented earlier this year at the U.S. Monetary Policy Forum. In the wake of recent developments in Europe, increased stress in financial markets has pushed that index halfway back to its immediate post-Lehman crisis lows.

The index is built from an array of financial indicators such as U.S. treasury yields, the volatility index (VIX), the stock market, and broker-dealer leverage, among others. It's a bit of a black box, but its calculation is giving a similar reading to what we saw during the worst of the financial crisis.

The broad index shows a significantly larger net drop than other financial conditions indices from most recent peaks partly because it gives greater weight to financial stock and flow variables and partly because it factors in the extent to which conditions have failed to respond positively to the supposed recovery of Gross Domestic Product (GDP). The continued absence of private securitization of mortgages and subdued activity in ABS markets persists in weighing on broad conditions. Factors that have tended to give an offsetting lift to financial conditions have included a slowdown in the tightening of lending standards and more recently a drop in Treasury yields and associated easing of mortgage rates.