NY Fed article explaining how doomed the Financial System is when the next 2008 GFC sized crisis occurs.

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by mark000

Going to be so bad:

https://libertystreeteconomics.newyorkfed.org/2024/06/the-growing-risk-of-spillovers-and-spillbacks-in-the-bank-nbfi-nexus/

  • the system may be disproportionately exposed to financial and economic instability when aggregate tail risk materializes.
  • bank-NBFI dependencies turn into vectors of shock transmission and amplification, forcing authorities to intervene and to do so en masse.
  • the commonality of asset holdings between banks and NBFIs could turn out to be an important source of market disruption, driven by asset-pricing dislocations in the event of forced asset sales by NBFIs in need of liquidity. Because of the increasing similarity in the asset profile of the various NBFI sectors and banks, the extent of these market disruptions could be rather severe.
  • Even more important, the entire system of financial intermediation is potentially more fragile because of the interconnections.
  • [Contagion effects in a crisis] propagating and amplifying the original shock to nonfinancial firms with increasingly complex economic ramifications.
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I expect this level 4 or 5 event to occur during 2H 2024, and that starts next week.
The 2008 GFC was a level 3 out of 5 event.
3 = Large [Govt and Central banks take extreme measures and save the day]
4 = Huge [Will cause a global economic depression]
5 = Massive [Global Financial System will collapse and Mad Max will take the helm assuming no Nuclear War]