The svb collapse has now caused a daily Contagion and everyone is panicking and The big victims are the U.S Regional Banks now we have said many times that The financial system runs on trust and Where that trust evaporates the entire U.S economy will be in panic mode we Have the Regional Bank seeing a crisis Of confidence as investors are starting To pull their money away from the stock Market now what we are seeing is a Brutal wave of Carnage across the Smaller mid-sized Banks First Republic Bank has crashed by almost 80 percent Western Alliance crash by 85 percent and Pacwest dropped by 60 percent hitting a Record low investors have turned their Backs on the Regionals even the largest Banks or initial drop in the stock Prices as well I want to stress that This banking crisis probably isn't over Yet we have seen two Banks collapse svb A signature bank are finished but that Is just at 4.5 interest rates today so Just imagine when the Federal Reserve Hikes rates up to five percent six Percent or even seven percent how many More banks will be exposed when the type Receipts because maybe the depositors Could be safe but the bondholders and Stockholders will be in big trouble we Have the ratings agency Moody's Downgrading signatures Banks debt to Junk status as six more banks are under
Review for downgrade as well and this Includes First Republic Zion's Western Alliance and Comerica just to name a few And why are they getting singled out is Because just like Silicon Valley Bank They have a ton of deposits that aren't Insured finally showed that 68 of Deposits were uninsured at First Republic and this means a lot of Deposits are sitting above 250 000 and If a collapse happens a lot of money Could be lost unless they get bailed out Again sure we have Joe Biden telling the World that the U.S banking system is Safe and we shouldn't Panic he has also About consequences for SVP management he Wants to punish the people on top top But it is a little too late and as You'll quickly see there isn't enough Money to bail out everyone and this is The problem today with the banking System especially in U.S banks they have Gone far off the deep end away from the Traditional deposit and Loan business Now the banks are buying up assets and Hoping for their bets to work out just Take svb for example we can see that There are total investment Securities at 120 billion are far larger than their Loans business which is only at 73 Billion dollars in fact it was over 56 Percent of total assets that is a lot of Money in treasury bets now svb was Horribly exposed to Rising interest
Rates and every time power hikes raise Up the banks suffered horrible losses on Their books that sooner or later they Had to realize and this led to the Collapse of Silicon Valley bank now Investors are starting to wake up and Realize that hey other Banks could also Be exposed to interest rate risk and They began pulling their money out to The point of trading holds the Panic got Worse because there was so much selling The exchanges actually halted trading The volatility was so extreme they had To stop trading multiple times and this Isn't good news especially if you're a Seller by the time you get back to Selling the stock could have plunged Further and now you are screwed and it Is this fear that's going to put more Stress on the backing system that could Cause even more Bank runs to happen we Know that money is living the backing System and they are going towards gold And U.S treasuries we can see the gold Price match past 1900 a few days ago Shortly after the collapse of svb and This tells us that trust in a banking System is shattering depositors Now Understand the words counterparty risk And they are choosing a true store of Value which is gold but that's not all Money is also flowing to treasury Sending ball news tumbling the biggest Three-day decline since the stock crash
In 1987. we have the two-year yield Dropping down by 100 basis points in Just a week just just look at this epic Drop in Born yields this isn't normal it Is signaling to the world that investors Are panicking that is money leaving the Banking system and deposits and Investors plowing cash into bonds that Can't default because the U.S government Through the Federal Reserve can always Print up a bunch of money to pay back Holders of the U.S treasuries but the Banks can't print money but where the Money flows into gold or bonds this is Bad news for banks because of liquidity From their main funding source which is Deposits could be drying up and this is The big danger of rising interest rates Remember the environment we are in the Budgeters have already seen two Banks Collapsed and the yields on the Treasuries are hitting nearly five Percent on the nearer end so if they Pull money out of the bank it can create A self-fulfilling prophecy that could Collapse any bank this is the contagion Fear that is dragging Regional Banks Down to Hell according to analysts Investors smelling blood then turn their Attention to the next Bank exposed to in Interest rate risk and Pacific credit Risk and the attention has turned to First Republic Bank which has Significant exposure to the coastal real
Estate markets appears to be next on the List and we can see from that 10K filing That the bank has over 166 billion Dollars worth of loans most likely from Their real estate book now that is 78 of Their total assets or 94 of their Deposit liabilities once again this is a Very high percentage but it isn't Unusual the loan business is the bread And butter of banks this is fine and Shouldn't be a problem in a low interest Rate environment borrowers can easily Repay their loans if they are locked in At a low rate but the problem comes if Borrowers default as rates go up how Many mortgages were written as Adjustable rates we don't know according To the Federal Reserve back in 08 Delinquency rates had risen to over 29 On adjustable rate mortgages now the Fixed rate delinquencies also Rose to Nine percent because of higher interest Rates back then people people were just Too broke and unemployment rules so they Couldn't pay back their mortgages and Here's the thing about mortgages they Can be sold off as Securities to other Banks also known as mortgage-backed Securities right or MBS yes you get to Raise money fast but you will likely Take a haircut if you have a fire sale Other banks will pay you less than the Original value because now interest Rates are higher and you're desperate
And that is why First Republic just got Additional funding from both the Federal Reserve and JP Morgan they now can Access an additional 70 billion dollars As a backstop if a bank run happens so They will likely be fine they should Have enough liquidity to tie through Thanks to this Lifeline but this is how Bad the situation has gotten we have big Banks popping up the smaller regionals Plus the government now trying to rescue Everyone and once again we need to take High interest rates more seriously U.S Banks are sitting on unrealized losses Of 620 billion dollars which is owning Going to grow as interest rates go up And if the Busters get freaked out and They want their money back this Bank Run Could cost another liquidity crisis than The banks will have to realize those Horrible losses and guess what the Government could step in and bail them Out again and let's talk about bailouts I think a lot of us misunderstand the Depositor bailout given to svb now this Isn't a bailout for the little guy it Was a bailout of the tech industry and If you didn't know by now the US Government has guaranteed all deposits At Silicon Valley Bank according to The Regulators depositors who have access to All their money starting Monday that Means both insured and uninsured Deposits even those above the standard
Amount of 250 000 now this sounds like Great news Until you realize that almost 90 percent of svb's deposits were Uninsured a huge chunk of money is from The big VC firms and technology Companies this is basically investor Money from the rich so yes I'm sure the Will out save the deposits of many Workers which is good news but this also Helped to bail out the rich the Republicans are now hammering the Bailout calling it a giveaway to the Rich they are taking the insurance Premiums that were paid in to protect Depositors under a quarter million Dollars which are the little guys and Using it to cover deposits of the very Rich the big problem with saving every Deposit is now you have set a bad Precedent if you guarantee every single Deposit in the svb collapse you'll have To do the same if another bank collapses Or it will be a clear sign of double Standards the U.S treasury has said the Deposit Insurance Fund or the dev has Over 100 billion in it more than Sufficient to cover both svb and Signature Bank deposits but do they have Enough money to cover all depositors in The United States let's look at the data From the fdic's own website the Designated Reserve ratio sits at only Two percent and that means there's only Enough money in the FDIC to cover two
Percent of estimated insured deposits in In the FDIC insured Banks he has been at Two percent for more than a decade but It gets worse the FDIC today doesn't Have enough money even for two percent They reported having only 128 billion Reserves or just 1.27 of total insured Deposits remember we aren't even Counting in the uninsured deposits yet So if a chain of Bank runs happen the Death will have to find additional money As a backstop to secure the depositors And because they build out the uninsured Money in svb they have to do the same For all depositors or there will be Chaos and where this money gonna come From the U.S treasury will likely have To go to the Federal Reserve to issue New bonds and print new money to Existence yes I believe the FDIC will Bail out depositors they won't default But it could be at the expense of the Taxpayer and higher inflation that's why The blanket deposit guarantee for the Svb has set up a big moral hazard for Future depositor bailouts and this Brings us to the future of banking it is Very likely we will witness a Consolidation of the backing sector as We have seen smaller Regional Banks Aren't as Diversified as the big boys They have a lot of concentrated exposure In Pacific segments such as U.S Treasuries or mortgage loans and as
Interest rates start to go up their Balance sheets are taking a horrible Beating but the big Banks they are very Different they have stronger positions And their assets are more Diversified Versus the smaller players and this is The big tragedy I see going forward for U.S banks the big banks will continue to Get bigger as depositors put their money Out of regionals throwing them into the Big boys we have the financial times Reporting how large U.S banks are Getting flooded with new depositors as The bank run continues money is Flowing Out of the Regionals and into the bigger And safer Banks and why do I call them Safer is because if a crash happens they Will be the first in line for a bailout And what does Bank of America JP Morgan And Citibank have in common they are all Part of the G6 or systemically important Banks in other words they are too big to Fail and here's the list of the GC Banks The higher they are on the list like JP Morgan or Citibank the more important They are to the financial system if a Bailout comes the unlikely first in line For bailout because if they collapse the Entire economy will probably crash as Well that is why a ton of money is Rushing to the giant Banks it's no Coincidence that depositors are running To JP Morgan Citibank and Bank of America they are at the top of the gcip
List they are simply too big to fail and This is what I foresee in the U.S Banking sector going forward the big Banks will continue to grow and buy over The weaker Regional Banks if anything Happens we only have HSBC paying one British pound to rescue the UK arm of Silicon Valley Bank they are doing this Because they can weather the storm plus They now have access to svb customers And their Network according to Dr CEO Their acquisition strengthens our Commercial Banking franchise and Enhances our ability to serve Innovative And fast growing firms so the big banks Are only going to get bigger and if I Had my money in the US I would put it Into a big GC Bank as well because they Are just too big to fail so let's Understand how bad things can get it's All about interest rates now and we need To watch the FED meeting in March which Is just a week away Goldman Sachs Believes the fat isn't going to hike Rates this month they believe it will Cause more stress on the banking system In fact we can see markets pricing in a 20 chance of a zero percent rate high They don't believe power would dare to Jack rates up but I don't think that's The case I think the FED is going to Still raise rates maybe not by 50 basis Points by at least by 25 because Inflation is still a clear and present
Danger the battle isn't won yet we still Have enormous wall spending on a Physical side the economy still looks Good to the Federal Reserve with Payrolls Rising by over 310 000 in February to the Fed state of the economy Is still strong and unemployment is Still very low so rates are likely going To hit higher the pain isn't over yet Bond yields are going to hit higher and We just don't know how bad the situation Can get and China obviously isn't coming To save the US after all the threats Made against them they aren't buying U.S Treasuries and in fact they have reduced Their bond Holdings month after month The Federal Reserve that made a deal With the devil for far too long the Devil being low interest rates and now He's here to collect so hang tight Because the show isn't over yet but let Me know what you think in the comments Below is the banking crisis over where The Federal Reserve continue to hike Rates up let me know in the comments Below stay safe be sure to smash the Like button and subscribe as we navigate Through these crazy times
