A reminder In each previous banking crisis, there was a day when the wind definitively changed direction. Only time will tell whether today''s vaccine news is the ''Whatever it takes'' of this crisis. At the very least, the sector''s lurch +12% reminds that fear works in both directions for banks: a powerful catalyst when it rises, so too when it falls. This short note addresses the questions triggered by vaccine optimism: What to watch next? How cheap is the sector? How to position within it? Interconnected The sector has been battling a trio of problems this year: credit quality uncertainty, flattening yield curves and trapped dividends. Each is sensitive to macro tail-risk. If vaccine optimism sustains, history suggests the switch from vicious cycle to virtuous circle should not be underestimated. Dividends first and foremost The ECB is waiting and watching before deciding on dividends. Sustained vaccine optimism must improve the sector''s chance of distributions. An earnings bull case is already visible The sector is in the midst of its best quarter for earnings surprise in more than a decade. Provisions are back near ''normal'' levels already in Q3. The market - both sell- and buy-side - has collectively shrugged its shoulders at the trend. Both will care more if macro tail-risks recede: particularly if 15-30% EPS upgrades meet a sector at a record relative P/E discount. Valuation dispersions We look at valuation dispersions in the sector: investors are not being asked to pay an unusual premium for ''expensive'' or ''highly profitable'' banks. For those returning to the sector, the good news is that you don''t necessarily need to ''Buy Beta''.