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European bank funding is looking almost normal. It's a sign of how tough markets have been for Europe's banks that lenders have had to pay more for wholesale funds than the companies they are supposed to lend to.

The spread between senior unsecured bank debt and investment-grade corporate bonds turned positive in 2009, reaching a peak of about 115 basis points last November. It turned negative again in mid-September, and is now an almost healthy -13 basis points.

The reversion is just one of many signs of improvement in bank funding markets in recent weeks. Banks in peripheral economies are raising long-dated funding even in U.S. markets, which froze last year. So-called central bank Target 2 balances – a measure of capital flight from weaker euro zone economies – have started to fall.

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So is the crisis over? Some of the improvement in banks' funding terms is deserved, and reflects progress in rebuilding capital. But mostly it reflects central bank largesse, which must one day end.

The European Central Bank's bond-buying program has removed immediate fears of a euro breakup. Central banks have also hosed markets with ultra-cheap liquidity and fixed policy rates at low levels. That forces investors into riskier assets across the board.

And, with the sovereign crisis enduring, funding markets are still hostile to some issuers. Banks in Italy and Spain still have to pay an elevated rate to borrow, a sign that the feedback loop that viciously entwines banks and sovereigns isn't broken. The healthy, unsupported functioning of funding markets is some way off. It requires a bigger move by European governments to create a proper banking union, with a centralized recapitalization fund.

But northern European countries seem to be backtracking on that plan.

What's more, if they do agree to a banking union, they may decide to bring forward resolution regimes enabling senior creditors to be haircut, hurting bank bonds. Banks should enjoy current conditions while they last.

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