Terrifying news from the US banking industry has struck again; will this lead to a full-blown financial crisis? The Federal Reserve stubbornly refuses to lower interest rates, isn't it afraid that American small and medium capitalists will rebel?
A friend from Wall Street shared with us a different American perspective and the truth behind the matter, which we'd like to share with you today.
If you have assets in a US bank, you must be vigilant recently as the US banking industry's troubles have resurfaced.
Many must remember that in the first half of 2023, several banks in the US, including Silicon Valley Bank and Signature Bank, went bankrupt one after another. The reason was simple: the US dollar's interest rate hikes blew up the junk bonds they held, and depositors, worried about safety, triggered a bank run that led to bankruptcy.
On February 2nd, the stock price of New York Community Bank plummeted, falling by as much as 50% in just two trading days. Many Americans began lining up at the bank's branches to withdraw their money, as they were genuinely afraid.
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Who is New York Community Bank? Established in 1859, it has a history of over 120 years, with assets worth more than $120 billion, ranking it among the top 50 in the US and recognized as a high-quality community bank.
More importantly, in March of last year, New York Community Bank acquired the then-bankrupt Signature Bank for $38 billion, seemingly getting a great deal. Now, it's facing bankruptcy itself, which is quite ironic.
How significant is this incident for the US banking industry?
On February 6th, the international rating agency Moody's downgraded New York Community Bank's credit rating to "junk status." Moody's stated that the bank suffered unexpected losses in its exposure to the commercial real estate market, shocking Wall Street.
The New York Community Bank crisis is like a tornado for the already nervous US banking industry. Other regional bank stocks also plummeted, and the bank run spread to multiple community banks, just like what happened at Silicon Valley Bank in March last year.After the bankruptcy of Silicon Valley Bank last year, it was reported that a joint research report released by several universities in the United States showed that the Federal Reserve's interest rate hikes have greatly increased the vulnerability of the U.S. banking system, with up to 186 banks across the country facing the risk of bankruptcy.
After struggling for a year, how many of these 186 banks are on the brink of bankruptcy again? Currently, no one can say for sure.
It needs to be particularly noted that this time it's not junk bonds that have blown up, but commercial real estate. Since the Federal Reserve started raising interest rates in 2022, the price of commercial real estate in the United States has fallen by more than 11%, and has become junk assets.
The alarm has been fully sounded, can a large number of small and medium-sized banks in the United States survive?
Last year, the bonds in the hands of the U.S. banking industry were blown up, and this year commercial real estate is blown up again, leaving a large number of small and medium-sized banks with nowhere to hide and no safe asset markets.
U.S. Treasury Secretary Yellen said at a hearing recently that the loss situation of commercial real estate is worrying, and regulatory agencies are working hard to ensure that the loan loss reserves and liquidity levels of the financial system are sufficient to cope with the current situation.
However, Federal Reserve Chairman Powell stubbornly stated on a program that a bank crisis triggered by real estate is unlikely to occur.
His words are mostly because, in March last year, in order to prevent the spread of the banking industry crisis, the Federal Reserve urgently introduced a special financial tool - the Bank Term Funding Program (BTFP).
In simple terms, this tool allows banks to mortgage their U.S. Treasury bonds, mortgage-backed bonds, and other debts to the Federal Reserve at a lower interest rate, borrowing funds to meet customer withdrawal requirements without having to sell bonds at a loss.
This is the Federal Reserve's targeted easing for the banking industry to deal with the crisis. The key is whether it can save the entire U.S. banking industry.According to data from the Federal Deposit Insurance Corporation (FDIC), as of the end of last year, the unrealized losses on the available-for-sale and held-to-maturity investment portfolios of all U.S. banks totaled $620 billion.
Note that $620 billion is just the loss figure. The scale of U.S. commercial banks' holdings of Treasury and agency bonds is estimated to exceed $4 trillion. This is just for bonds, and does not include commercial real estate assets.
Data from the Federal Reserve shows that as of January 2024, the scale of commercial real estate loans in the U.S. banking industry was as high as $2.9 trillion.
Adding the scale of bonds and commercial real estate loans, it is expected to exceed $7 trillion. If there is a large-scale explosion in the U.S. banking industry, even if the Federal Reserve can start the printing press to print U.S. dollars, how many can it save?
This makes us not quite understand why Americans are not afraid of explosions in the banking industry.
The Federal Reserve insists on not lowering interest rates, isn't it against the world? Isn't it afraid of U.S. small and medium capitalists raising the banner to rebel?
A friend from Wall Street broke the secret, the U.S. financial concept, the financial crisis is an outbreak in the bubble, and the U.S. dollar interest rate increase is to squeeze the bubble, bankrupt are all "bad banks" and "bad assets", this is industry self-purification, not a financial crisis.
This statement also has some truth. However, if there is a large-scale explosion in the U.S. banking industry, what else is it if not a financial crisis? Is it a financial storm?
Will 2024 be the year of the U.S. crisis explosion? I'm afraid this year will be very difficult.