Posted on 03/11/2023 3:47:01 AM PST by EBH
Fortunately, bail-ins do not apply to deposits under $250,000, which are protected by FDIC insurance. That is true in theory, but as of September 2021, the FDIC had only $122 billion in its insurance fund, enough to cover just 1.27% percent of the $9.6 trillion in deposits that it insures. The FDIC also has a credit line with the Treasury for up to $100 billion, but that still brings the total to just over 2% of insured deposits.
If just one or a few banks become insolvent, the FDIC fund should be sufficient to cover the insured deposits (those under $250K). But under the 2005 Bankruptcy Act, derivatives creditors (which are considered “secured”) are first in line to recover the assets of a bankrupt bank; and the Dodd-Frank Act followed that practice. So if a bank with major derivatives risk collapses, there might be no bank assets left for the non-insured creditors; and a series of major derivative cross-defaults could wipe out the whole FDIC kitty as well.
As of May 2022, according to the most recent data from the Bank for International Settlements (BIS), the total notional amounts outstanding for contracts in the derivatives market was an estimated $600 trillion; and the total is often estimated at over $1 quadrillion. No one knows for sure, because many derivatives are “over the counter” (not traded on an exchange). In any case it is a bubble of ominous size, and pundits warn it is about to pop. Topping the list of U.S. derivatives banks are J.P. Morgan Chase ($54.3 trillion), Goldman Sachs ($51 trillion), Citibank ($46 trillion), Bank of America ($21.6 trillion), and Wells Fargo ($12.2 trillion).
(Excerpt) Read more at scheerpost.com ...
Journalistic mal practice
You are correct!
BKMK this post.
How about pausing inflation?
Rates will then drop.
Tax away all personal income above $1 million annually when inflation in the tax year has been above 3%. That will make CEOs fight inflation.
Tax away all corporate income above 1% of 2020 sales on a like basis.
My methods won’t cost the government money. They probably will put the federal government in the black and make the dollar rock solid again.
FDIC insurance premiums have been absurdly low.
Why should the government be insuring private bank operations anyway?
If people want government insured debt, they could buy savings bonds, which paid about 3% in my youth.
If banks had been paying inflation beating rates on CDs, the federal government could not have gone on a cheap debt financed vote-buying orgy.
There is no evidence of a wide spread banking problem.
One bank lending to risky high tech companies biting the dust is to be expected.
Normal bank might because of inflation have capital of market value of say $900 million instead of $1 billion.
I’ve lost at least 3% a year in buying power since the madrasa educated Kenyan moved into the White House.
I don’t think any money should be guaranteed. If you put your money in a bank like the stock market and you lose it, that’s the risk you take. Sorry but it’s ridiculous for the federal government be involved in banking at all.
That’s derivatives and not total assets.
Derivatives can be riskier or safer than the underlying asset. After the Orange County bankruptcy, people associated derivatives with high risk. And some are but some aren’t.
For example with mortgage derivatives, they can split the interest payments off from the principle payments. The interest payment are a lot more risky than the underlying mortgage, because of the risk of early payoff. While the Principle payments are safer and are secured by the underlying property.
Likewise if you split the mortgage by short term payments vs long term payments, the long term payments are riskier and are thus allocated a higher interest than the mortgage as a whole. The short term payments are loved my money market funds because the maturities fit within their requirements. And while the interest is lower than the mortgage as a whole, it’s higher than they can get elsewhere.
So that chart doesn’t really tell you much. Because you don’t know total assets, and you don’t know the risk profile of the derivatives.
Actually, there have been several historic American panics. There were runs on many banks that were very harmful to ordinary people. As you suggest, they lost their deposits.
To reduce and even eliminate that possibility, the Deposit Insurance concept was created. For ordinary depositors the risk is reduced and even eliminated. The result is a stable banking industry.
One result was the death of Wachovia and it’s absorption by Wells Fargo. Depositors came out ok, but Wachovia stockholders lost their investment
If you like your bank run, you can have your bank run.
FDIC insurance started in 1934 as a way of reducing bank runs as occurred in the recent Great Depression.
Bkmk
I keep my cash in a Federally insured credit union that appears pretty safe, but also keep a bunch of silver that I will continue to add to as this progresses. I don’t see inflation going away anytime soon (maybe a temporary reprieve), so will gradually switch out of my remaining cash into precious metals.
The whole Song and Dance sales pitch in 1913 was the federal Reserve ( it’s not Federal and there is no reserve its just a name )
was to prevent booms and busts.
They failed. Get rid of it.
More to the point, when it looks like banks *might* go bust, either the feds, *or the bank itself* might declare a “bank holiday”. This means that depositors can no longer withdraw their savings, and that the banks “instruments”, like checks, are temporarily invalid.
In the Great Depression, some bank holidays lasted from 30 to 300 days. And has been noted, FDIC insurance may end up only covering a tiny fraction of deposits.
Which is why “mattress money” is not such a bad idea.
It should be noted again that all the paper money in circulation is only enough to cover less than 4% of daily retail in the US. So if there is a banking and credit collapse, paper money will overnight be worth 20 times its face value. That is, a nickel will be able to purchase what costs a dollar right now.
But after a short stint of retailers only accepting physical cash, there just won’t be any in private hands, so merchandise will also have massive price deflation.
During the Great Depression, this was described as “You could buy a pound of hamburger for a nickel, but nobody had any nickels.”
Banks are part of the financial structure that includes insurance companies and other financial entities. Think of how bricks and mortar work together. If you want to keep the structure you can’t have either one fail.
Banks arent bad
Fractional reserve banking is.
Private bank fiat fractional reserve banking is asking to get robbed.
Private bank printing a nation’s currency and loaning it at interest in species is suicidal.
It’s the like the difference of building on sand or building on bedrock.
.
So ... What does everyone think is going to happen next week?
Will everyone with more than $250,000 in a single account (think rich people and companies) start pulling their money out and spread it around to other banks to keep their accounts under 250K?
When they do that, where will the banks that they currently have their accounts get the money ... they will be selling assets (bonds and securities) to generate the “cash” for their customers. And when they sell these bonds securities (basically mortgage back securities at 3.5% or less), they will be taking losses.
Now multiply this by hundreds of banks around the country ... how many more banks by the end of next week will be in a liquidity crisis? More bank failures in the coming weeks?
Now, will the Fed reverse their monetary policy and begin another QE? If so, then inflation will start jumping up again and the dollar will drop like a rock.
It is looking like a damned-if-you-do, damned-if-you-don’t situation.
I’m in a small one county credit union and have been for 38 years... B+ Health rating.
This is exactly what is going to happen if the FED and Govt. doesn’t step in. And frankly, if you run a payroll over $250K you need to be able to park it at few banks overnight to get distributed.
How many of these business customers did that on Thursday at SVB, expecting paychecks to get deposited to their employee on Friday.
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