“Let us not bandy words. We have [created] a new kind of bank. It is called too big to fail. TBTF, and it is a wonderful bank” – Congressman Stewart McKinney (1984).
“2023: Banks failed because they were holding Treasuries and MBS
1965: Banks failed because they were holding Certificates of Deposit” (New Low Observer, 14.03.2023)
The downturn and the insolvency of Signature Bank, Silvergate Bank and Silicon Valley Bank is all significant. It has structural issues, as well as fiscal and possible ramifications far from the shores of the United States of America. These banks are connected in a huge and vast system where liquidity and risky business transactions are happening accordingly. This is all spreading the risks, the investments in government bonds and other financial instruments to possibly secure profit for the shareholders. However, these can default, get costly and lose value when the bonds rates are growing and your stuck with old interests’ rates on the set-bonds. That’s what is happening, and you are losing the trust between the banks and the national reserves selling government bonds.
These American banks was allowed a lot of freedoms and liberties with their holdings. In such a manner, that was opened up in the previous administration. The Dodd-Frank Act was gutted and given the banks less regulations over their business. Therefore, they could take huge risks without any strings or conditions, neither a clear oversight body from the Federal government. Which in the end cost it dearly. In the beginning after lobbying for it… it was profitable and good business. However, now we are seeing the costs of these operations and why the banks are out of business.
These three banks will not only hurt the ones who used these banks for payroll, accounts for their operations and whatnot. There are so many companies and tech-start-ups that will be hurt by the SVB alone. This will further cause harm to the digital space and their innovations, as this part of the economy has already been hit over the last few years. Where we are seeing major companies already sacking and ceasing certain parts of their operations to cut away additional expenses.
We can see the damage it does when Credit Suisse is being hit and lose confidence. It is just showing how the dominions are hit and is in play. Now the burden of the liquidity pools, the customers taking out their funds or moving them to securer accounts. If not they are trying to find other measures or safer bets in the markets. This is all showing the weakness and the lack of funds within the banking system, which isn’t tied up to long-term bonds or yields; that isn’t as viable or valuable as they were last year. It is all ending up to a costly enterprise and the taxpayers are the ones that could lose it all. Since, the banks could be bailed out, but the small earners and customers of the banks aren’t the ones who is getting their monies back. No, that will be for the big-men and the ones who has risked it all – gambled the money and been earning vast profits in the sunshine, but they cannot manage the rain.
The crisis in the banking industry isn’t not only based on the lack of trust or the risky investments with people’s savings. No, it is the lack of cash on hand plus the initial investments into long-term bonds or financial instruments to supposed secure a safe return on the already invested funds in a bank. When the people and businesses hear news of lacking funds and lack of liquidity. They all bomb-rush a bank to take-out or move their funds. Which makes the bank insolvent, when it cannot meet its obligations or pay-out other clients of the bank. That’s when they are forced to close and end their business. This is what is happening these days and it’s crushing it.
We should be worried because this is spiralling in the markets. More and more places are fragile. There is a lack of fiscal funds and of due diligence in the banking sector. They have been able to get away with taking huge risks, but not having back-up or additional funds to cover losses. That is in the end biting the hands that feeds it. Since, they are risking the savings and the funds of businesses using the banks. While not considering the implications of investing these funds. Losing its value and struggling to get rid of old bonds or other assets, which have been the case yet again.
There should be worries on the horizon. The loss of funds, the sudden insolvency and the urgent movement of capital from one bank to another. The risks of further contagions across the banking sector is there. Not only because of the devalue of old government bonds, but the lack of fiscal funds for all the deposits or funds, which the customer is supposed to be able to get. That’s why the banks are failing, and they are not strong or has enough cash-flow on hand. Which is in the end destroying them from within. Peace.
MinBane 