Current unrealized losses in the US banking system is -$1.8 trillion out of only $2.2 trillion capital
With corporate taxes due Sep 15 & possible gov shutdown Oct 2, the general public has no idea the banks are already insolvent entering a nightmare liquidity scenario in October t.co/aS0GoAomoI pic.twitter.com/rNttNxd7jB
— Financelot (@FinanceLancelot) August 29, 2023
Beware of leverage in downturn pic.twitter.com/5IHdkVTJnM
— Win Smart, CFA (@WinfieldSmart) September 6, 2023
Cash has a higher yield than stocks for the first time since 2000
Historically, it’s a signal for market tops
A thread 🧵 pic.twitter.com/A7uzOBqJUc
— Game of Trades (@GameofTrades_) September 6, 2023
16/ Remember, markets are unpredictable
In 1999, the tech bubble caused the market to peak 1.5 years later
Today, excitement about AI is causing similar market euphoria pic.twitter.com/Fbd8YKbSX8
— Game of Trades (@GameofTrades_) September 6, 2023
Since the Fed started raising interest rates in March 2022, a record $862 billion in bank deposits have been withdrawn.
The previous record?
~$70 billion in the 2008 financial crisis.
That means that ~12x the deposits leaving banks in 2008 have been withdrawn in the last 1.5… pic.twitter.com/3CxTgpto79
— The Kobeissi Letter (@KobeissiLetter) September 6, 2023
Study Finds 75 Percent of U.S. Banks Didn’t Hedge Interest Rate Risk; Unrealized Losses on Securities $516 Billion at End of First Quarter
A group of academics have conducted a study that found that during the fastest pace of Fed interest rate hikes in 40 years, the majority of U.S. banks failed to hedge their interest rate risk. The report’s findings include the following:
“Over three quarters of all reporting banks report no material use of interest rate swaps.”
“Only 6% of aggregate assets in the U.S. banking system are hedged by interest rate swaps.”
“Banks with the most fragile funding – i.e., those with highest uninsured leverage — sold or reduced their hedges during the monetary tightening. This allowed them to record accounting profits but exposed them to further rate increases. These actions are reminiscent of classic gambling for resurrection: if interest rates had decreased, equity would have reaped the profits, but if rates increased, then debtors and the FDIC would absorb the losses.”
The use of the phrase “classic gambling” to describe 75 percent of the U.S. banking system by highly credentialed academics might be something that the U.S. Senate Banking Committee might want to hold a hearing about with some sense of urgency.
Real Estate Crisis Looms, Posing a Threat to American Banks
Regional and community banks, which have heavily invested in commercial real estate, now face risks as the Federal Reserve raises interest rates. With rising rates, banks must offer higher deposit rates to retain customers, reducing the funds available for lending and absorbing loan losses. As office vacancies surge in major cities, real estate investors struggle to refinance debt, leading to defaults and losses for lenders. This situation threatens the commercial real estate market and the banking system, causing concerns among industry experts.
Taxpayers Are Bailing Out Federal Reserve Member Banks
Taxpayers are unknowingly bailing out Federal Reserve member banks. Historically, the central banking system generated profits and contributed to the U.S. Treasury. However, a shift has occurred due to sharp rate hikes. The interest expenses the Fed now faces outweigh its earnings, accumulating nearly $93 billion in cash operating losses since September 2022. Rather than assessing member banks for these losses, the Fed is borrowing to cover them, adding to the consolidated federal debt. This alarming trend is escalating, with several district banks teetering on insolvency, raising concerns about the growing financial burden on taxpayers.