Are we there yet? European banks are up +80% from their lows. This report addresses the dominant question from recent investor discussions - ''How far can this go?' - by considering lessons from prior crises, the signals from the bond market, valuations and the earnings outlook. In sum: we''re probably not there yet. Picking battles Recovery rallies are all about valuation and yield curves, fundamentals come a distant third. Valuation lessons from the past and overseas argue for 20-35% further re-rating. For the first time in a decade, the sector may not suffer from an earnings downgrade cycle, which helps. When does it end? History suggests the right time to buy banks is when it feels most uncomfortable to do so, and the time to underweight them is during periods of post-crisis euphoria. We lay out the sign-posts to look for in 2021 that the rally has over-stretched. Supersized wallets Household deposit growth hit an all-time high in January, according to data released yesterday: we focus on the implications. We estimate European ''lockdown savings'' sitting idle in current accounts equivalent to 1.5pp of GDP: particularly high in France, the Netherlands and Portugal. We find scant survey evidence indicating an imminent consumption binge, though house-purchase intentions have reached an 18-year high: good for mortgage lenders and asset quality. Investment conclusions Valuation dispersion in the sector is relatively tight, allowing investors to gain exposure to the rally via good quality banks, with intact revenue and profitability, at still-discounted valuations. Our Top Picks: BBVA, Credit Agricole, Intesa, Credit Suisse and Lloyds.