Falling Bank Chronicles
Artem Karida
Educator | C-suite advisor | business strategy, innovation, and marketing expert
This is the first instalment of a history of the crisis involving the banking and financial system as it is now developing, with all contents based on incoming information, beginning on Friday, March 10, 2023.
Read Part 2 of the story "Crisis of Confidence and Regionalization. "
Read?Part 3?of the story "The Tipping Point: Systemic Deterioration in Finance "
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The important components of US bank reporting
Because we will use numerous terminology in the future, it is crucial to clarify the important components of bank reporting for a better grasp of the subtleties of the current problem.
Following the 2009 financial crisis, banks classified their debt instrument investments into three broad categories:
HTMs are assets that are not for sale but are kept until maturity, with the major source of income coming directly from coupon payments rather than exchange rate disparities. This form of investment is carried at a cost that is amortized.
We don't care what the current market price is, even if it's 20% less than the face value. If the investment is "strategic" and long-term, the price in the bank statements is considered the initial acquisition cost, and all current losses (due to changes in interest rates or market circumstances) are virtual paper losses.
It is important in this sort of investment whether the issuer can redeem the bond or not, and all market nuances are irrelevant. Regardless of market pricing, the price in the balance sheet remains constant for the whole period of owning HTM.
AFS is carried at fair value (fair and market values differ). Unrealized gains or losses (holding but not closed positions in securities) are recorded as a net increase or decrease in accumulated other comprehensive income or accumulated other comprehensive income ("AOCI") in the section "Capital" of the bank's balance sheet.?
The distinction between the fair and market value is a subject for another discussion.
There are other complexities here, such as the holding duration, the present value of all future cash flows, transaction sequence, and so on. The fair value is near to but does not fully reflect the market value, and there is some room for innovation.
Unrealized gains on AFS are not reported in the income statement and will stay unrealized until the debt position is liquidated.
Banks are only allowed to move securities from one category to another once a year, but there are loopholes in the law that allow this to happen more frequently.
HFTs have an impact on the income statement, whereas AFSs have an impact on equity via AOCI but are not represented in income. However, HTMs have no effect until they are compelled to be written off due to the risk of issuer default or internal cash shortfalls.
In the event of a capital deficiency, AFS may be obliged to liquidate when the accumulated losses on AOCI exceed 50% of capital, as a conditional red line.
As a result, one mechanism for manipulating bank statements is the transfer of securities from the AFS category to the HTM category. For example, in JPM, the share of HTM abruptly jumped from 54 to 68% during the year, symbolizing.
The employment of interest rate derivatives, swap instruments, and other complex derivative schemes is the second method for hiding / disguising losses, or rather hedging.
What drives banks to close unprofitable positions? Currency shortages caused by:
Silicon Valley Bank has declared bankruptcy
This is the greatest bankruptcy in the United States since the fall of Lehman Brothers on September 15, 2008, which triggered a series of catastrophic events. SVB went bankrupt practically immediately after Silvergate Capital One went bankrupt.
The SVB has been managed by the Federal Deposit Insurance Corporation (FDIC), and all commercial operations have been outsourced. The FDIC will pay out the insured deposits on March 13, and then begin liquidating the bank's assets and payouts as part of the proportionate distribution of the certificate to the other uninsured investors.
What kind of institution is this? The bank's primary concentration was providing financial services to technology start-ups, particularly on venture capital financing.
According to reports from the end of last year, the bank had approximately $209 billion in assets, with $175 billion in client deposits providing capital.
What is the value of 200 billion in assets for the United States? According to the Fed, SBV ranks 16th in assets among commercial banks. While, if we exclude investment banking divisions, highlighting just the assets of banks within the dollar system, we get the following results:
Other words, SVB is on par with Morgan Stanley, State Street, and Bank of New York Mellon.
American divisions of international banks in the United States:
As you can see, SVB is only second to HSBC.
If we aggregate global assets, including the investment banking sector, the largest American financial firms are:?
So, what exactly happened??
SVB has more than $120 billion in securities interests, virtually entirely in debt instruments. Approximately 85% of the investment structure was long-term bonds, with a clear preference for mortgage bonds in the MBS segment ($58 billion).
SVB's investment portfolio was 54%, the largest among American banks. State Street is the closest competition, accounting for 42%.?
The Fed began tightening monetary policy in March of last year; by October, debt market rates were prohibitively high, and the SVB started to have troubles. A significant portion of the investment was in fixed-rate bonds, the value of which has plummeted.
SVB's unrealized loss had increased to $16 billion by the end of 2022, up from $500 million in Q1 2022, owing entirely to higher interest rates.
As a result, SVB began to reduce losses by shifting to short-term treasuries, variable coupon bonds, and boosting derivatives hedging. It didn't help that the bank's capital was $16.2 billion in December 2022. After another rate hike in February 2023, the balance became negative (losses of over $20 billion), and everything fell apart.
The bank's demise was hastened by a rush of investors who attempted to withdraw investments in the last 7-10 days when news of probable troubles in the bank appeared in the media.
The final trigger was precisely the incursion of investors,
and the problems were accumulated and structural, at least until mid-2022, but SVB skillfully masked these problems, drawing a "fantastic" report on the profit of $1.7 billion in 2022, with a hole of more than $20 billion, three times higher than the bank earnings.?
Hidden problems and speed
In terms of analyzing the potential hazards, the fall of the SVB is critical. What makes this event unique? - Hidden problems and speed.
Unlike Lehman Brothers, where the first signs of trouble were reported in the media in early 2008, and the depth of the crisis was revealed in the summer of 2008, SVB was a different story.
The bank's management, in fact, misrepresented reality to such an extent that by the beginning of February, the shares had recovered all losses with an aggregated growth of more than 75% in just 1.5 months.
SVB was recognized as the best bank in the "Bank of the Year" nomination 10 days before bankruptcy in early March 2023, at a gala concert in London, and the SVB CEO cynically outraged common sense and investor confidence, instilling confidence that "the situation is under control and the problems are far-fetched. And at the same moment, SVB traders were restructuring a $20 billion hole in the balance sheet, with a capital of $16 billion and a fake profit of $1.6 billion.
Only until the bank was challenged by hedge funds and venture capital competitors (a week before bankruptcy) investors began to flee, withdrawing $40 billion (more than 20% of the deposit base) from SVB.
Actually, it killed the bank. The crushing fall of investments caused by rising interest rates could still be balanced by fraudulent reporting and the derivatives market, and there was nothing to hide the raids of investors.
Problems SVB is a long-term fixed-income bond investment strategy with insufficient diversification and no hedging. SVB, like many other hedge funds, expected that zero interest rates would last indefinitely. The second issue is the rise in interest rates as a result of the Fed's policies and investor "invasions" in early March.
SVB attempted but failed to raise several billion dollars in emergency funds.
This is hardly surprising, everything is logical and predictable here, at least for us (see more "Risk distribution balance"). The vector was known, but there was no way of knowing who would be the first to go and when.
Another surprise - quickness. It was only a few hours, not two days. In fact, the time between the first visible and public concerns to the liquidation proceedings was less than 30 hours.
This could be due to the coordinated policy of the Fed, the US Treasury, and the FDIC, as well as the major dealers, rather than the extent of the hole in the balance sheet.?
It couldn't happen without their blessing and involvement. This is almost a tracing paper with Lehman Brothers, which happened with the direct assistance of well-known officials in the Fed, Treasury, and the top American banks.
The bankruptcy of Lehman was required (as a sacred victim) in order to provide a perfectly controlled trigger for the legitimization of the TARP program, which was unimaginable at the time, and the Fed's redemption of assets.
Then, after 15 years (in terms of speed and volume), insiders made record profits, which were never covered because interested parties bought the market when everything was sold.
It's difficult to say what their objective is right now.
Most likely, SVB's troubles are global in nature; other banks have similar gaps in their balance sheets, and there will most likely be a shift in public perception that it is time to slow down on tightening monetary policy.
The market was expecting a plus 0.5 percentage point increase at the Fed meeting on March 22, but it appears that 0.25 percentage points will be the limit. Everything is now "unexpectedly" altering the Fed's tone.
The question now is how far they will go, and whether the SVB case will be marketed in any way.
Unlike Lehman, the fall of the SVB will have little effect on the financial system. SVB is relatively isolated, but the inevitable shift of liquidity from small to major banks is a side effect of system infection and eroding of confidence.
The bank had no chance
The SVB's quick demise was not due to a systematic mistake in management risk management, which resulted in an overconcentration of long-term debt securities at fixed rates.
The decline was not even attributable to the depreciation of securities as a result of the record rise in rates in the money and debt markets, which resulted in the construction of a hole of nearly $20 billion in March 2023 with a capital of $16 billion.
Certainly, all of these are substantial factors undermining the bank's viability; yet, the most powerful pressure on the financing base became the trigger and the trigger for disastrous consequences.
Deposits accounted for 89% of the bank's liabilities, according to Bloomberg, and two weeks before March 10, orders were issued to remove more than $40 billion, which was 20-25% of the deposit base, which is the key funding resource.
The bank had no chance under these circumstances. That kind of investor pressure is a death sentence with around $12 billion in cash, over $120 billion in securities investments, many of which were deep in losses, and $74 billion in loans.
According to the information that has come in recently, the restructuring of the securities portfolio from January to February 2023 could result in fixing losses of 2-2.2 billion dollars, but the flight of depositors not only emptied the cash position of 12 billion but also resulted in a forced closure portfolio of securities, where the accumulated losses could only cover the entire available buffer in equity.
SVB's bankruptcy was caused by a confluence of several bad variables and processes: insane risk takers in the bank's trading division (as well as the bank's management) who did not hedge interest rate risk and assumed that low rates would last forever by overloading long-term bonds.
This is the Fed's policy, with aggressive rate increases reaching a peak in 41 years.
Nevertheless, finished off the bank – a severe "Bank-run".
So, here are some inconvenient questions for the protagonists:
There is evidence that within three days, numerous big hedge fund representatives and top representatives of the largest banks dramatically altered their estimates for SVB, suggesting an immediate withdrawal of funds.
There has never been a precedence in the history of the banking system for such a speedy liquidation of a bank (from the moment of the first information exposure to the liquidation commission), at least with assets exceeding $10 billion.
Given the magnitude of the pot, there is no doubt that this was done with Yellen and Powell's direct approval. For what purpose?
SVB is a typical example of fintech. Specializing in lending to private equity and venture capital funds, with a concentration on technological start-ups.
The bank's target customer includes software and digital infrastructure companies (infotech), fintech, medical equipment and biopharma (biotech), digital advertising, and the crypto industry.
Someone sorely needed to dampen the fervour surrounding technological startups, high-risk venture investments, and crypto-mania?
In the crypto business, tiny tech startups, the direction of the blow is localized. It is critical to highlight that this is not on the scale of Microsoft, Google, or Oracle, but in plankton with revenues ranging from $100 million to $1 billion and dramatically inflated capitalization to the point of insanity.
Furthermore, in the setting of a smaller pie and rising rivalry for client funds, bank capital consolidation and concentration are expected.
The grey eminence and financial elite representative Summers actually verified the hypothesis: "owing to recent developments, there may be a need for some consolidation in the banking sector. The authorities' error is rooted in their fear of consolidation, which originates from a populist obsession with a purported attempt to help small enterprises and society. Whereas bank consolidation (the merger of small banks with larger ones) promotes financial stability.
Summers is a Wall Street megabank lobbyist and a key member of the political establishment.
According to the statement , Yellen is confident in limiting and isolating the SVB problem and its possible spillover impact.
According to the declarations, the US Treasury anticipates that a buyer for SVB's assets will be found in the near future (there will be either an absorption or a split)
"The banking sector is well financed and steady," says Yellen. "Citizens may have faith in the banking system's safety and soundness, and the US economy is tremendously robust."
There are plans to establish a stabilization fund (FDIC + Fed) for banks that experienced difficulties following the collapse of the SVB, although this information has not been confirmed explicitly by authorities.
The FDIC will restore insured deposits up to $250 thousand in 100% volume on Monday, however, these deposits are low (no more than 6%). The majority of SVB's investors were legal companies from the information technology, biotechnology, alternative energy, and marketing industries.
Uninsured deposits will be refunded as the bank's assets are liquidated beginning Monday. The procedure and priority have not yet been determined and will most likely be in manual spot mode.
The bankruptcy trustees are already working with SVB, FDIC, and SVB auction to discover a potential bidder, which should be known late on Sunday evenings.
After SVB, who is the next to leave?
Candidates for potential issues based on market risk and balance sheet structure include:
Around $520 billion for all possibly distressed assets
This does not imply that the failure of these institutions is assured since each bank has unique characteristics, asset structures, levels of diversification, depth of hedging, integral safety margins, and many other factors. Nonetheless, the market has "written off" the majority of the institutions on this list as being possibly susceptible.
The 2022-2023 crisis is different from the 2007-2009 crisis in that this time, interest rates and market risk are the key factors having an influence, whereas 15 years ago, credit risk was the main concern.
What specifics will the banking crisis in 2023 entail? A significant decline in the value of assets, especially debt securities, where the concentration of bank assets was highest and the decline was the sharpest in 45 years.
The Fed's monetary policy and the high trajectory of the rate rise, where the annual rate of change is the quickest in 42 years, are closely tied to the decline in bonds. As a result, hundreds of billions of dollars in unrealized loss were lost (exact calculations to come later).
Several strategies are being used by banks to address the present issue. Diversification, investment structure (duration, bond grade, interest rate type, etc.), depth of hedging, liquidity reserve, and other subtleties are important.
Banks are free to balance or conceal losses as they now do so long as there are no liquidity shortages. What is causing them to twitch? This is a bank robbery by investors and the destruction of capital during the acute period.
SVB had a 100% unrealized loss to equity, compared to 43% for Bank of America, 27% for State Street, 25% for Wells Fargo, and 24% for US Bancorp.
A series of events. Bank Signature
The illness is getting worse as a result of a chain reaction. The program malfunctioned. Once the second bank failed, the Fed restarted its emergency lending initiatives.
The Federal Reserve officially confirmed that two days after the failure of SVB (assets of $200 billion), another bank, Signature Bank, with assets of $110 billion, also failed.
The bank's management was promptly removed, insured savings up to $250,000 are guaranteed, and uninsured balances will be distributed according to an ambiguous auction basis.
Credit lines to banks have been immediately extended by the Federal Reserve. A new Bank Term Financing Program (BTFP) will be established, granting loans for up to a year to banks, savings organizations, credit unions, and other qualified depository institutions.
Treasury securities, mortgage-backed securities (MBS), and agency securities (agency debt) priced at par are used as collateral for these loans.
What the going rate on the market is is irrelevant. The Fed's new program, which is designed to provide an extra source of liquidity and prevent banks from having to sell securities during a liquidity crunch, prices assets only at par.
A further $25 billion from the currency stability fund will be allocated by the Treasury and the Fed in order to assist the BTFP.
The present Fed effort basically means limitless funding for banks given the history of credit lines in 2008 and 2020. (from hundreds of billions to plus infinity).
The largest shift since March 2020 was a substantial decrease of 0.5–0.6 percentage points in interest rate predictions.
Three days before the SVB's bankruptcy
Three days before the SVB's bankruptcy, the FDIC published the following in its annual examination of US banks' performance: "In summary, banks have demonstrated their resilience over a three-year period using conventional performance metrics. Just 39 institutions remained on the FDIC's list of problematic banks as of the end of 2022, a record low. No one filed for bankruptcy.
Speaking before Congress on Wednesday, Powell made a gesture that was an obvious indication that things were going far better than anticipated and that it was thus appropriate to consider further tightening monetary policy (based on his verbiage).
The market's response was clear-cut: rising bond yields and elevated expectations for rising FRS interest rates.
Up until last Thursday (March 9), it was believed that the interest rate would peak between August and October 2023 at 5.62% (a rise to 5.75% was permitted) and that the decline would start no early than December 2023.
The 2-year Treasury yield increased during the past month from 4.09% to 5.09% as a result of very positive macroeconomic data for January and persistent inflationary pressure, which far exceeded expectations for a rate hike by the Fed.
Overnight, everything drastically altered. The 2-year Treasury rates fell sharply to 4.4% as a result of the collapse of the SVB, which was the sharpest reduction since October 20, 1987. The marginal rate is now anticipated to be 5.18%, with a high in July and a potential decline as early as October.
With a cut duration of three months and a peak predicted Fed rate that is over 0.5 percentage points lower, these statistics do not show the collapse of the second bank.
Although it was the most likely scenario on March 9, no one is now anticipating a 0.5 percentage point growth on March 22. In addition, more and more investment banks predict that there won't be any rate increases at all because of the escalating financial crisis.
What intermediate effects of the two banks' failure?
While certain aspects are undoubtedly beyond their control or ability to be predicted, it is still difficult to determine how much they are able to influence the situation. When a key uncertainty causes an unreasonable fear, a catastrophic cycle of poison feedback emerges, entangling more and more people in the vortex of fatal occurrences.
Why? Suddenness. Nobody anticipated that the financial sector would experience issues by the evening of March 9; that day, a bank with 200 billion in assets would fail, and two days later, another bank with 100 billion in assets would fail. Next, what?
What appeared to be steady may be lost in a matter of hours. Yeah, they are able to guarantee deposits in two banks, but there are about 23 trillion deposits in the banking system overall.
How can a $23 trillion deposit base be guaranteed by the US Treasury's $25 billion contribution from the $38 billion stability fund?
Technically, practically any bank might be in danger since issues are widespread.
The depreciation of assets in debt instruments caused by the rate increase increased interest rate risk, which was countered by an increase in loan interest rates.
Thus, a rise in loan interest rates would ultimately result in a rise in defaults and write-offs, raising credit risk. All of this is done without accounting for the collapse of the real estate industry, which poses its own unique issues.
More precise numbers will be provided after the systematization of bank statements, but a risk that is rather common for such circumstances will emerge right away: a crisis of confidence that can be solved by liquidity as normal, but fundamental imbalances in banks cannot be prevented.
It appears that the Fed will resume slamming liquidity in all directions, which might destabilize the already precarious balance of confidence in the Fed.
The financial sector is worried
The investing community suddenly started to worry about the damaging effects of high-interest rates on financial systems and the overall economy. That is the surprise and the twist, right?
The most acute breakdown in the financial sector since the failure of Lehman Brothers (assets of more than $600 billion) and Washington Mutual Bank ($307 billion) involved two bankruptcies of relatively significant banks in terms of assets ($200 billion and $110 billion).
If we simply consider commercial banks, the total assets of all American banks, including tiny ones, went bankrupt:
The last three days have seen the collapse of banks with $320 billion in assets, making 2023 the worst year since 2008.
The total surprise is one of 2023's characteristics. Nothing indicates problems, not even the reports from the banks, but then again, there is no bank. This sends investors into a coma and panic because it raises the possibility that any small- or medium-sized bank may face collapse.
The response is excellent. The greatest flight into bonds in the past 50 years, as well as the most substantial repricing (in terms of the pace of transformation).
Over at least the entirety of computerized trading from the mid-1980s, there has been a record-breaking decrease in the yield of prominent European nations' bonds with a maturity of two to five years.
The 2-year US Treasury rates saw their quickest revaluation since October 1987, moving more than 100bp (from 5.09% to 4%) in three trading days.
This is the largest change in the absolute value of a bond (with growing value) in recorded history, given the size of the debt market.
Expectations for the Fed's interest rate trajectory to alter are moving more and more in favour of policy easing.
On March 8, the Fed's monetary policy reversal was anticipated to occur in January 2024. On March 10, expectations switched to October. Now, everyone is anticipating the first rate decrease in August or September, and the maximum rate is just 4.95%, down from 5.65% on March 8.
As a result, the maximum rate will rise to 4.75%, and pressure relief will start this spring, exactly as in 2020.
The Fed must now make a tough decision: either playoff inflationary pressures in order to preserve faith in the currency and the Fed's monetary policies or save the financial system by refraining from tightening.
Powell can theoretically resume his regular duties and begin again to flood the markets with liquidity, as he did for two years with undisguised joy (which led to the current imbalances).
The language will alter. In response to inflationary absorption, Powell will ask, "Do you want the financial system to collapse? And he will be absolutely correct.
Changes in the cost of funding cost banks around $250 billion each 100 bp (1 p.p. ), which is equivalent to their yearly profit.
Banks and funds used for investments are excluded from this. The impact of debt securities' depreciation is not considered.
Only 1% change and that's a burden. Certainly, banks may shift costs onto consumers by raising interest rates on loans, but this will inevitably result in a slowdown in lending, a rise in delinquencies, and a rise in write-offs, which will ultimately have a more negative impact and cause banks to suffer greater losses. Nevertheless, not all interest rate risks can be hedged by banks, and there are subtle differences.
The inequities and gaps are enormous. Evidently, a highly important (or maybe a number of financial tycoons) became ill, necessitating the need for such speedy action (such a quick bankruptcy).
The financial system has so far achieved its goals. Thus, a precedent has been established that will allow Powell to gracefully exit the wedge and justify the reasons for not tightening, and restoring the mechanism for debt refinancing through increased demand for bonds.
Counties' banks? Who cares about them at all? Yet, there is a significant chance of secondary infection and violation of trust, both of which can set off an extremely dangerous chain of events with lethal results.
Irrational hopes?
They (the Fed, the US Treasury, and the FDIC) think they have control over the system; otherwise, they would not have decided to dispose of the two banks in an incredibly short period of time. If you include crypto-focused Silvergate Capital, which has $11 billion in assets, there are really three banks.
Because most people outside of the US have never heard of SVB and Signature Bank, it was feasible to prevent the fear and controversy from spreading globally.
Without going public with the crisis, procedures may have been used to adjust liquidity in these risky institutions without anybody being aware of the issues.
If Powell hadn't made his spectacular mistake on Wednesday, when he spoke "about the ultra-strong US economy and the need to battle inflation," and at the weekend they were already putting out the fire with kerosene, there would not have been lines for deposit withdrawals from other regional banks.
They believe that their routine actions to flood the market with liquidity will be sufficient to address every issue and quell any "obstinate" attempts by the market to spiral out of control, but what if they aren't?
In 2022, when bond placements reached zero, the debt refinancing system was the major issue. Highly likely, these "holy sacrifices" were meant to be the spark for its restoration.?
Bond demand deterioration was a major problem last year since market rates were far lower than inflation rates at the time.
The quick depreciation of the securities portfolio, which alone resulted in $650 billion in unrealized losses on debt instruments, was the second issue.
Unrealized losses might top $3.5 trillion when accounting for investment banks, pension plans, insurance, and investment funds. based on the structure of the US financial sector's investment in debt securities and their fair value, with assets in the debt market totalling $27 trillion.
All of this is done without accounting for interest rate risk, which peaked in Q3 2022 and progressively transformed into credit risk due to a decline in credit discipline and a gradual increase in delinquency, where the process might suddenly accelerate. The losses are significant.
The market has been adjusting to zero interest rates for 12 years, and most financial structures had the belief that they would last indefinitely, much like the SVB bank, which failed due to its lack of diversification and hedging depth.
By returning to their customary course of "endless softness," the Fed and Powell personally will be able to salvage face in the crisis involving Silvergate Capital, SVB, and Signature Bank.
Without bankruptcies, there was not a single opportunity to reverse the trend of tightening monetary policy since more consistent negative macroeconomic statistics were required, which have a certain inertia. Undoubtedly, someone needs cash relief.
Given Summers' comments and the sarcastic jabs of JPM's James Dimon and Blankfein (the architect of the modern financial system and a retired Goldman Sachs executive), it appears that they genuinely believe they are in charge and will profit from the redistribution of financial flows from small and medium banks to mega banks.
The panic can be (partially) put out locally, that structural distortions won't be fixed, and that the erosion of confidence will have long-lasting, unexpected effects.
Regional banks are currently experiencing panic, and considering how interconnected the economy is, this may be quite unpleasant.
March 14, 2023
Major blow for local banks
The devastating impact on US regional banks substantially outweighs the loss in March 2020, and for some institutions, it is even worse than the damage from the 2008 financial crisis.
2008 differs from previous years in two significant ways:
While the emphasis was centred on the quality of the loan portfolio, the structure of investments in securities, and interbank lending via a crisis of confidence in 2008, the specifics of the crisis were different and to a lesser extent impacted the primary source of financing (deposits).
So, if the financial crisis of 2008 mostly affected huge financial institutions, the main victims in 2023 will be small and medium-sized financial firms.
Normally, a decline in the quality of the loan portfolio is the cause of a banking crisis, but this time, interest rate risk and unequal distribution of assets and liabilities by duration are fully realized, and credit risk is put on hold.
With the failure of two banks, the first trading day was particularly challenging. For instance, shares of First Republic Bank dropped 79% in a single second, shares of Western Alliance Bancorp dropped 85%, the greatest decline ever, and shares of PacWest Bancorp dropped 60%, reaching an all-time low. By the close of the trade, there was a rebound.
The US Bank Index dropped by 12%, the most since March 2020; however, when major banks are excluded, the decrease is more than 20% (equivalent to the worst days of September and October 2008), and the drop is greater than the fewer assets the banks have.
Inverse proportion: The impact on capitalization and vulnerability increases as asset value decreases.
The following list of banks and financial institutions includes those that are vulnerable, at risk, and perhaps insolvent:
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Assets / Cash / Net loans / Investments in securities / Deposits / Equity are listed in the following sequence, sorted from big to small (cut-off by asset level over $40 billion). Selected banks that were under the most informational pressure.
When the secondary effect of infection spreads over time and has the potential to trigger a chain reaction, the system is out of balance, and the dangers are increasing.
The uniqueness of this crisis
The impact of complacency and emotional weariness must be considered in the banking crisis of 2023. A pause that might be interpreted as a stabilizing effect may follow a severe, agonizing shock reaction, but the structural change processes and the hunt for a new equilibrium take longer to complete.
Understanding what structural change entails and what shape the US banking industry will take in a year—would there be a domino effect? Will the US banking crisis extend to Europe or Japan?—is crucial.
It is clear from what is happening right now that the mega banks and the financial system's skeleton are only partially exposed to the threat of infection. This is indirectly demonstrated by the market's response and the snide, haughty "ridicule" of powerful bankers, who are purposefully commenting on these events with a detached distance as if they were a fascinating performance following a pre-written script.
They were afraid in 2008, and in 2020. Threats of a cascade financial system collapse and an unchecked rise in the toxicity of the loan portfolio, with all the resulting repercussions, was present in March 2020.
The Fed, the Ministry of Finance, and the senior executives of the biggest banks are now very at ease. This is what? Irresponsible assumption or a wise strategy?
Super banks aren't a threat, according to the market.
Notwithstanding the fact that most regional banks failed by 40-80% (nearly 5 times! ), while reasonably steady medium-sized banks fell by 25-40%, the collapse has already reached 6-7 times. A complete wreck.
But why are the major banks so stable??
Substantial fragmentation of the asset/liability structure and liquidity access (large banks have better diversification, risk management and hedging depth).
We were referring to giant banks (principal dealers)—those that trade with the Fed as part of QE and provide liquidity across the financial system—when we previously talked about cash redundancy on accounts in US banking institutions.
Liquidity is only highly concentrated among the major banks.
The distribution of budget cash to individuals in 2020–2021 was the major method by which the regions received it, albeit to a much-reduced level, but that resource has now been depleted.
As a result of the shrinking funding base (deposits), regional banks are compelled to hike rates in order to draw in consumer money, whilst major banks may maintain considerably lower deposit rates. There is just another element eroding small banks' stability.
Further depleting the deposit base and allocating liquidity in favour of big banks is the panic brought on by the failure of SVB and Signature Bank. The fear is that it will become worse from here on out!
It is still hard to predict who else will be put into liquidation since, in many ways, this process is unpredictable and depends on public opinion, the effect of information, and whether or not there will be other investor raids.
Depositor run-ins cannot be concealed by using derivatives or by manipulating reporting through AFS and HTM rebalancing.
Using the BTFP mechanism, known as "Buy The Fucking Pivot", the Fed is attempting to stop the raids.
This program means that in the case of a bank run, it will be sufficient for banks to get a loan from the Fed at OIS + 10 bp (approximately 4.8%) backed by securities in treasuries, MBS, and agency papers at face value rather than having to liquidate assets in an emergency mode at a loss.
And sell assets as much as possible or essential while taking your time.
Fed Capitulation
In less than a week, a wave of bankruptcies across the US financial sector (Silvergate, SVB, and Signature Bank) has significantly altered interest rate expectations.
According to the most recent update, the cap rate is now 4.75%, as opposed to potentially 5.75% on March 9, and the monetary policy reversal has been shifted from January 2024 to June 2023!
The Fed's rate expectations divergence for the second half of 2023 was over 1.4 percentage points vs 0.6 percentage points on Friday, which was the fastest change in expectations (three trading days) in the history of the US financial system.
This was mirrored in bond yields, with two to five-year maturities having the greatest obvious effect.
In reality, this is a surrender, a reluctance to tighten, a rejection of all declarations of an implacable war against inflation, a return to the previous pattern that resulted in the existing structural distortions.
Those who "ordered" SVB and Signature Bank fully expected the scenario to play out.
On a sea of bankruptcies and uncertainty, rigid terror and fear? This means typical techniques for supporting banks through credit mechanisms, and now we get market stabilization and verbal assistance (and, if required, direct monetary support) -> distortion of the feedback loop and risk rejection (flight into bonds, lowering expectations of growth in rates).
All of this should validate the Fed's decision not to tighten and save Powell's face, reputation, and credibility in the face of inflation.
There was no doubt that they would take any slip as an excuse to jump off.
For what purpose? Rising interest rate risk in high-rate environments, which flows smoothly into the banking system's credit risk, may eventually engulf not only regional banks but also the largest bankers themselves.
Apparently, the margin of safety was sufficient for only six months of relatively high rates. That's all there is to it. It was not possible to wait for inflation and macroeconomic indices to stabilize.
We celebrate the first Fed rate hike anniversary in mid-March 2022 with a wave of bankruptcies.
Is inflation still relevant today?
Under the new reality, inflation data has lost its "charm" in terms of impact on market volatility and direction.
Throughout the last year, market movements have been constructed based on the trajectory of expectations along the monetary policy track, and the interpretation of macroeconomic and financial data, as well as statements by politicians and regulators, have been aligned accordingly.
Surreal, but the worse the macro data, the better for markets, as it is expected that this will slow inflation.
The main theme was the issue of inflation, and the variables and components related to and dependent on inflation were ranked lower in importance. In fact, the monetary and market agenda was driven by inflation.
Monetary policy was established in the context of inflation because inflation eventually influences the debt market, interest rates, and trust in the Fed and the dollar.
The higher the inflationary pressures, the more furious Powell must be, acting as a one-man theatre of "firing out" purposely harsh rhetoric, which was bound to frighten the market and lower inflationary expectations.
In fact, the Fed is more concerned with inflation expectations than with current inflation, because it is the first that influences real rates in the debt market and contributes to the formation of demand for bonds, thus holding the debt refinancing mechanism and the entire financial system together.
According to New York Fed polls, one-year inflation forecasts have fallen to 4.2% from 6.8% at the top in June 2022 (which is higher than the average 2.3%-2.5%), while three-year inflation estimates have fallen to 2.7%, which is in line with the norm.
Bankfall and inflationary expectations should help the Fed get out of the problematic position of being trapped by its own rigidity on monetary policy, and so contribute to the rejection of tightening.
Current inflation is up 0.4% m/m (6% y/y), with food up 0.4% m/m (9.5% y/y), energy down 0.6% (increase 5.2% y/y), goods excluding energy up 0.5% m/m (5.5% y/y), and services up 0.6% m/m (7.3% y/y).
March 15, 2023
US banking system purge and concentration of liquidity in major institutions
The long-term effect of the failure of two sizable regional banks in the US is a hyper concentration of the banking system's capital and deposits in mega banks. That is the main cause of this operation.
The Buy The F**ing Pivot (BTFP ) program of the Federal Reserve closes cash gaps from regional banks according to the following logic: if there is a bank run, it is sufficient to borrow money from the Fed under the BTFP program, secured by securities valued at par, and then gradually balance assets and liabilities.
The Fed and the Treasury are confident that this program will prevent a domino effect by easing stress on the deposit base and the banking system, which will in turn stop toxic contamination throughout the entire chain of counterparties in the financial system, relieving the burden on financial assets.
What about their plan to hastily liquidate three banks, including two sizable ones, in less than a week? Why weren't they immediately saved?
There are long-term tendencies regarding the last point. The number of commercial banks that are FDIC-registered is steadily dropping.
There were:
In the recent past, 200 banks fail on average per year (usually with assets of less than $1-$3 billion).
Small banks with less than $1 billion in assets now make up 4.8% of all banks' assets, down from 6.2% before COVID, 11.4% prior to the 2008 financial crisis, 18.2% in the start of the 2000s, and 25% in the middle of the 1990s.
The American financial system is being cleaned up, and huge banks are becoming more liquid.
"Risk neutralization" imitation
In an effort to provide the impression that everything is in order, the Fed, the US Treasury, the business media, and main dealers are working together to generate a "risk neutralization" effect.
The publication's tone is shifting, and an argument is being made that "this is as it should be," that is, that business as usual is continuing.?
There were worries of the system being contaminated by an uncontrolled process of mass bankruptcies when more than a dozen regional American banks fell by more than 50% at the start of trade on Monday. Many of these institutions were falling by more than 75% (a drop of 4-5 times).
By the end of the trading day on Tuesday, the cumulative rise from Monday's lows amounted to tens of per cent (in some cases, hundreds of per cent), and the overall losses in regional banks were 35-60%.
This steadiness is really an illusion. The goal is for no one to fall out of control, skillfully separating poisonous institutions, preventing contamination of the system, and preventing a chain reaction even with the failure of fairly significant regional banks with combined assets of over $330 billion.
When the risk of bankruptcy is transferred to the Fed in any emergency crisis through different types of monetary doping, they employ their preferred way of purchasing a conditional free Put option from the Fed to do this.
The markets' stability is also attributable to a considerable reevaluation of the expected trajectory of monetary policy.
Last year, a 0.15 percentage point shift in expectations cost the S&P 500 index roughly 1% of its capitalization; this year, expectations have eased by more than 1 percentage point, so merely the "softening impact" has contributed nearly 7% of market value. Without this, the market would suffer greatly.
The goal of this entire "operation," however, was not to keep the stock market steady but rather to protect the financial system from unmanageable interest rates and market risks as the Fed tightened monetary policy, averting rising credit risk, particularly with regard to home loans.
Including the Federal Reserve but not including commercial banks, investment banks, brokers, dealers, financial trusts, pension and insurance funds, mutual funds, etc., the overall balance sheet of the American financial system is as follows:
The impairment of largely long-term fixed-rate bonds might result in an unrealized loss for the bond portfolio of more than $3.5 trillion.
Compared to the cut-off projection in December 2021, shares and shares have an unrealized loss of roughly $7 trillion.
Since the first quarter of 2023, there have been indications of a decline in the loan portfolio, where over $30 trillion in loans might increase credit risk.
The unrealized market losses of more than $10 trillion were brought on by the decline in bonds and the stock market from their bases in December 2021 and 2021, respectively.
There will undoubtedly be a conditional SVB that did not diversify the portfolio, did not hedge the risk and held a dangerous integral market position in these circumstances (a $10 trillion paper hole).
There is no other option but to slow down with tightening because what happened is not just an issue with two banks; it is a problem with the whole financial system, which was shown to us in a microcosm.
As a result, stabilizing bond demand and making an effort to stop the cycle of tightening monetary policy are the major tasks being accomplished.
Manipulating to stay alive
An intriguing characteristic appears when analyzing the balance sheets of commercial banks in the United States. Following COVID, American banks significantly boosted their investments in assets (bonds) classified as held to maturity (HTM).
Investments in the HTM category were 1.1 trillion at the end of 2019, and are now 2.8 trillion, representing an enormous increase by historical standards, as confirmed by the graphic.
Bond investments began to be reclassified from the AFS category to HTM, allowing banks to record assets at par almost in line with the trajectory of the Fed's key rate hike in 2022.
However, investments in securities in the category Available for Sale (AFS or available for sale) did not move much from 2019 and declined dramatically from 2021, owing primarily to fair value.
As a result, the proportion of HTM in the security structure increased from 27% in 2019 to 48% in 2022!
So what's the point?
We discussed the "mechanics" of bank accounting in the first piece of this paper, and the transfer from AFS to HTM is the most evident means of manipulating accounts in order to stabilize capital in a depreciating bond.
Unrealized losses on securities in the AFS category absorb (decrease) capital through AOCI, whereas they do not in the HTM category, making banks appear better in numbers than they are.
Certainly, the transfer to HTM reduces the bank's liquidity by preventing it from "freely disposing" of assets in this category, but having excess liquidity in the form of cash is not required.
Without a doubt, commercial banks in the United States included the risk of both rising rates and the potential for bond depreciation in the HTM category during the monetary lunacy in 2020-2021 and 2022, allowing them to evaluate bond investments at depreciation cost.
Credit Suisse is in trouble
Credit Suisse, the backbone financial structure of Switzerland (together with UBS) and one of the world's leading banks in terms of influence, is now in big trouble.
During the day, the bank's capitalization fell by 30% to $6.5 billion, which is over five times less than March 2022 and more than 40 times (!) less than April 2007, implying that the bank's capitalization was fully decimated in 15 years.
Problems with the bank, both structural and internal, due to a decrease in counterparty confidence in Credit Suisse (terrible corporate governance), which leads to an outflow of customers and a decrease in interest in banking services. This tale has been going on for at least two years, in an intensified version, since the beginning of 2021.
Credit Suisse has been losing money for the past two years. With sales of 14.9 billion francs, the bank suffered its second largest loss in history - 7.3 billion francs in 2022 (a loss of 8.2 billion in 2008), and a loss of 1.65 billion in 2021, with revenue of 22.7 billion, which "devastated" the accumulated profit from 2018 to 2020 - 8.1 billion francs.
Prior to it, there were three difficult years from 2015 to 2017, with an overall loss of 6.6 billion francs, and a profit of 19.3 billion francs from 2009 to 2014.
From 2008 through 2022, the accumulated profit is close to zero - only 3.6 billion francs, which is a full, absolute, and embarrassing failure for a bank of this magnitude. And, in this illustration, we have yet to show results for the dreadful Q1 2023...
Credit Suisse has five divisions:
Three of the five divisions are losing money, while the profitable ones contribute a minor positive outcome to the overall balance sheet.
The bank's assets topped one trillion francs ten years ago; they are now 531 billion, with a 30% drop in 2022. The securities portfolio is being actively reduced, having been slashed in half in recent years, including owing to depreciation.
Credit Suisse's illustrious 167-year history has been particularly turbulent in recent years:
Practically everything at Credit Suisse is horrible, and the bank is a strong contender to take over from its US counterparts. There is only one alternative as a prudent move for those who wish to keep at least something good from this institute - dividing.
In the interim, until a final decision is reached, we will most likely hear something along the lines of "the Swiss Central Bank will give liquidity to Credit Suisse in exchange for collateral," or something similar.
16.03.2023
First Republic Bank is in trouble
Another large bank under direct attack is First Republic Bank, which has $213 billion in assets but has relatively low deposit liquidity coverage.
The bank's shares plunged nearly six times since March 8 to approach the lows of the banking crisis period.
With a deposit base of 177 billion, the bank has only 4.3 billion in cash and equivalents (2.4% versus 50% for Credit Suisse), putting the bank at danger of forced liquidation of holdings in the event of any movement on commitments.
The bank's assets are structured as follows: loans 166 billion and securities 33 billion, implying that the theoretical potential to cover the outflow is no more than $35 billion, subject to the complete liquidation of the securities portfolio, which is almost entirely in HTM, i.e. in a category not available for immediate sale.
In truth, the bank is completely open to the outflow of client funds. How much money was removed from the bank following the banking crisis caused by SVB's bankruptcy? There will be no answer, at least until the first quarterly report.
There is evidence that First Republic Bank has asked JPM for assistance and has already gotten credit lines from the Fed. According to reports, First Republic Bank is planning a sale or reorganization.
The chain reaction works in this manner. Every disruption in the financial industry creates concerns about the stability of financial institutions, activating the processes of "search for reliability" and risk avoidance, which detect weak links in the chain.
A typical cascade effect is an unwinding spiral of negative occurrences in which one event serves as a trigger for the implementation of subsequent events, and so on, via a chain of interconnected causes and processes.
First Republic Bank has combined the worst of the worst: near-zero cash reserves, a lack of diversification, a concentration of long-term bonds, and a lending portfolio that raises concerns.
A confidence crisis causes a domino effect. Counterparties attempt to isolate the poisonous ingredient by withholding payments and decreasing, if not cancelling, counter obligations and credit lines.
With the exception of the ECB. Lagarde lost sight of the ECB's monetary policy trajectory during the news conference, hinting that the current rate hike could be the last. She suggested that a 0.25 percentage point increase in future sessions was possible, but only if financial conditions and stability were good.
Addressing the incentive for tightening monetary policy and returning to "infinite softness" is critical. And for a compelling reason to return softness, "European SVB" could be an excellent option. Does anyone want to volunteer? :-)
17.03.2023
The Financial Frenzy Continues
The printing press is in action. The Fed did not wait until March 22 to start pumping money at full capacity.
The Fed issued the most significant credit impulse in its history - more than $ 300 billion each week - to banks through various loan programs administered by the Fed.
We neutralized 60% of the balance reduction program, which lasted about 9 months, in just one week! The very program was launched and implemented as part of the Fed's commitment to reducing inflation.
To get a sense of the magnitude of the monetary frenzy... This is an unparalleled volume, as the largest weekly infusion on credit programs during the COVID crisis was little more than 80 billion, and during the 2008 crisis, in the second week after Lehman's bankruptcy, the Fed granted banks 146 billion.
This week, the Fed issued twice as much, indicating the magnitude of the banking system's hole.
Following Lehman Brothers' collapse on September 15, 2008, the Fed gave banks more than $810 billion + $100 billion in Repo over the course of nine weeks, and this was the total amount of assistance received during the most acute phase of the crisis. In addition, nearly $500 billion in swap lines with foreign central banks were set up to ensure dollar liquidity.
If we aggregate all categories of the Fed's balance sheet, then the accumulated assistance in all areas amounted to about $1.3 trillion in 2008, in the first three months after Lehman's collapse; this volume was later replaced by the QE program in 2009-2010 by a comparable amount but at a much lower intensity.
From the beginning of March, the Covid issue began to thrash with liquidity, primarily through share buybacks. During the first three months of the COVID crisis, when it was at its most acute, $2.8 trillion was printed in, including securities + $2.1 trillion, swap lines - $446 billion, loans to banks - $100 billion, loans to companies - $65 billion, and bank REPO - $70 billion.
In one week, 12 billion were issued under the new BTFP program, 147 billion through the discount window, and another 143 billion in a "secret" loan with the FDIC.
Monetary policy tightening? Is there a commitment to combating inflation?
One year after the Fed tightening start
What happened exactly one year after the Fed began tightening its monetary policy?
Minus three banks in a week, with more on the road, risk insurance and credit spreads in space, rate expectations drastically down at a record rate of change (more than 1.3 percentage points in the next six months), and financial institution contagion sweeping across the system.
The Fed's quickness in capitulating is, of course, incredible. If the Olympic Games included a sport for changing shoes during a leap, the Fed would be an unchallenged champion.
Large financial firms have not slowed down. Lesser regional ones have already "got a cold" (by dollar financial system standards) due to deposit outflows and asset devaluation, but what if someone more major "emerges"?
How the Fed operates. There is a plan to decrease the balance sheet, which will go into effect in June 2022. According to the program, they were intended to sell $483 billion in treasuries (in fact, they sold $440 billion - close to the sale's timetable) and $281 billion in MBS (in fact, only $99 billion).
As a result, the portfolio of securities should have been decreased by $765 billion, but it was only $540 billion, and they were only accelerated in October, having previously lagged behind the sales plan.
Only $9 billion were sold in the first 15 days of March, bringing the backlog to $225 billion. During the COVID crisis, the Fed expanded its balance sheet by more than $4.6 trillion to $8.5 trillion, implying that securities sales in nearly 9 months are only 12% of the volume ransom for two years.
At the same time, the Fed poured over 60% of the volume of Treasuries and MBS reductions in a week through credit programs (the average sales rate is 15 billion per week), implying that the volume of freelance liquidity injection is 20 times greater than the reductions.
Bank deposits with the Fed climbed by $440 billion in a week due to monetary operations, including those involving the Ministry of Finance – a record gain.
Farce, clowning, and insanity. Everything reverts
While the Fed was shrinking its exorbitantly inflated balance sheet, the money machine switch went red hot, waiting for its best hour.
Powell has taken an intentionally hawkish tone in news briefings since the last goal was scored in May, saying he is ready to turn around as soon as a valve breaks someplace, i.e. until the first crash. Here's something we posted a few months ago: "This whole circus continues until there are no obvious symptoms of a crisis and until no one in the "too-big-to-fall" sector bursts at the seams from overload. The degree of stability of the financial system is directly related to the Fed's aggressiveness. Every disruption, no matter how minor, will cause the rhetoric to shift at breakneck speed."
In a context where inflation is plainly out of control, a hawkish tone is required to create the impression of power and exhibit "consistent, irreconcilable" moves and actions to neutralize the source of outrage of monetary calm and trust in the dollar and the Fed (especially in mid-2022).
Simply put, control inflation expectations and "cement" confidence in the Fed, while real Fed inflation is unimportant.
Like investment projects in the real economy, demand for financial instruments (stocks, bonds, and monetary assets) is determined by inflation expectations rather than present inflation.
Economic actors are more interested in the future than in the past, even though this projection is frequently based on mental inertia. The greater the length and magnitude of the negative occurrence, the more steady the attempt to extrapolate the past into the future.
As a result, protracted and high inflation generates addiction and modifies consumption and investment patterns, changing monetary, price proportions, and future perceptions, so shaping future inflation.
Inflationary expectations impact asset prices (reducing interest rates) and demand (increasing investor interest in bonds). In turn, inflation expectations are influenced by trust in the Fed's policy and the financial system.
Economic agents' activities are impacted by their belief in the Fed. For example, if a consumer or investor anticipates high inflation, he will act in his own self-interest to maximize profit and/or safeguard funds now, and his current activities will affect inflation in the future.
This lengthy introduction was necessary to describe the monetary structure in which the credibility of the Fed's policy might affect inflation.
So, what is the point of it all?
If the Fed enters a vortex of monetary craziness on every occasion (just give me a chance to turn on the machine) without finishing the process of inflationary neutralization, that is, if it rushes from side to side, it undermines the Fed's credibility.
How?
It devalues all words and intentions, giving the Fed the appearance of a jester-clown. All future statements will be evaluated through the prism of monetary frenzy, and trust in monetary policy is eroding, distorting the Fed's transmission mechanism even further.
We all know Powell enjoys speculating, and the creation of financial bubbles is his weakness and favourite pastime; otherwise, there would not have been a prolonged outrage against common sense in 2020-2021, when Powell and the Fed ignored literally everything: financial bubbles, monetary imbalances, and inflation risks.
To put it mildly, such quick reversals are embarrassing.
"What else is the Fed to do if the financial system is on fire?" is a logical question. Banks should not be bailed out. This will set off a chain reaction, resulting in uncontrolled infection. All of this will result in a cascading collapse that will damage broader financial structures.
What matters is the causal relationship and form of bankruptcy of three banks, which were liquidated in a matter of hours.
Thus far, what are the intermediate results?
Powell is expected to detail the Fed's monetary policy direction in his remarks at the March 22 Fed meeting. If the rhetoric is mild, drastically altering the rate's trend downward, as is most expected, journalists will ask, "Isn't it too sharp a reversal?"
Powell's reaction will be ironclad: "What do you want the collapse of the financial system and uncontrolled infection?". The argument is completely catastrophic. You can't argue with the Fed since, in addition to limiting inflation, it is also concerned with financial stability.
A huge exodus of depositors from small and medium-sized banks can cause a chain reaction of bankruptcies, causing the financial system to split, with all the implications it entails.
So far, these are merely assumptions, but given market expectations and the Fed's peculiarities, there are prerequisites for this.
What matters is the causal relationship and form of bankruptcy of three banks, which were liquidated in a matter of hours.
To avoid exposing the problem to media attention and causing panic among depositors and investors, it was natural to address the situation behind the scenes, utilizing the regular internal communication channels of the Fed and banks.
SVB did not fail because of its asset structure, albeit there were issues with it. The primary cause is a significant flood of investors who withdrew over a quarter of all deposits in a short period of time (within two weeks).
In the absence of liquidity, this compelled the bank to sell assets at a loss, which "depleted" capital and ultimately to bankruptcy.
The failure of the SVB has cast questions on the viability of other regional banks, and any breach of quiet in the financial industry casts doubt on the ability to meet obligations. Although no one has cancelled inherent structural concerns at First Republic Bank and others, the difficulties are the product of a media machine unleashed to tarnish regional banks.
The second critical factor is the rapidity with which the bankruptcy occurred, which considerably confused many investors and depositors.
If the 16th largest bank in the United States goes bankrupt literally in a day, and shares are removed from trading 3 hours after the public announcement of problems (on March 9, the problems were announced in the evening, on March 10 there were no trading anymore) - this, to put it mildly, greatly destabilizes the situation, increasing uncertainty and leading to risk aversion and the search for "alternative shelter".
There were unquestionably agreements with the FRS, the Ministry of Finance, the FDIC, and the largest banks.
Based on trends and stakeholder statements, the following is the most evident motivations:
In other words, to maintain the Fed's credibility and reputation in the event of a significant change in monetary policy direction.
The difficulty of the financial system to assimilate such high rates is the reason for such a high intensity of occurrences.
As a result, they are attempting to address more global crises by sacred sacrifice, much like they did in 2008 with the "custom-made" collapse of Lehman Brothers. They did not contribute $20 billion to justify the influx of billions...
Read Part 2 of the story "Crisis of Confidence and Regionalization. "
THE END OF THE REPORT
Stay tuned.?
Regards, Negorbis.
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