The Legislative Analyst’s Office noted the debt crisis involving the California Employment Development Department’s (EDD) UI trust fund on July 7.

The state report was released following last week’s “May Fund Forecast” report by the EDD. It said that a temporary surcharge, which state businesses are currently paying to cover the agency’s multi-billion dollar debt to the federal government, may continue to be in place for some time.

The additional taxes being paid by employers will offset the $20 billion in federal loans taken by the state to cover UI benefit payments during the pandemic and related stimulus measures.

The money that California is using to pay claimants’ benefits, is already guaranteed by the feds, no matter what financial condition the EDD is in.

California is one of the two states that has remaining debt from the pandemic and accounts for 73 percent of that debt nationwide, with New York accounting for the rest.

According to California Globe, the EDD has been called one of the most mismanaged agencies in the state, with government insiders allegedly calling it “the place where state careers go to die.”

California Will Take Years to Pay Off Debt

The EDD said that even without the debt incurred from the state’s pandemic response, which is the cause of the latest insolvency and tax hike, California would still have had to borrow money over the next few years.

The report said this would continue even in a “good” economy and that the structural insolvency would need at least two to five years to fix.

“Historically, benefit payments have only exceeded contributions during major economic downturns—most recently, during the pandemic and Great Recession,” the EDD report said.

“For the first time, the fund is expected to be out of balance during a period of job growth.”

The EDD believes that the surcharge fee will now last about 15 years and not the six or seven years as originally projected in order to pay back the $20 billion borrowed from Washington.

California lost about $40 billion to unemployment fraud during the pandemic, most of which could have been prevented early on, with a state fraud prevention identity security system.  

However, the disgraced former labor department chief Julie Su, who was aware of the problem the whole time, waited months to install an anti-fraud system.

Taxpayers Paying for State Mismanagement

The EDD expects to take in about $5.3 billion in UI tax money over the next couple of years to pay off some of the debt.

The unpopular surcharge tax will cost each California employee about $1,500 over the next 15 years, with rates starting at $21 per employee and rising until it hits $420 a year until the federal loan is paid off.

The insurance department expects to pay out an extra $2.6 billion in benefits and overheads, which is more than it will receive in the next two years.

This will raise the amount the UI trust fund owes to its creditors from $17.6 billion to about $20.3 billion by the end of 2024, despite the extra $1.2 billion raised in extra taxes, according to the May report.

This includes interest, which was projected add an extra $300 million a year to the debt.

Rob Moutrie, a policy expert with the California Chamber of Commerce, told the California Globe, that his organization is “disappointed to see that California businesses will be paying an extra tax for even longer than expected.”

Moutrie said that California’s UI fund “was never intended to be used by the state as a society-wide social safety net” and that most other states made sure they were able to immediately pay off any pandemic debt they incurred.

It has been hoped by many advocates that this latest scandal will force a reform of the agency. But action may require additional UI taxes to address the issue, making it unpopular with the state’s politicians and the public.

Article cross-posted from our premium news partners at The Epoch Times.

Many major banks have announced that they’re closing down branches in 2023, as more and more customers are making deposits via their phones or to keep tabs on their balances, all without leaving their homes.

Others still rely on physical bank branches to do to the bulk of their transactions, and these closures will affect how many conduct their financial affairs. The only branch openings in May were by Big Poppy Holdings and Pinnacle Financial Partners, each of which opened two branches.

Bank Branch Closures Spike in 2023

There were 227 net closings last month, up from 79 in April and the trailing-12-month average of 132, according to a June 30 report from S&P Global Market Intelligence. U.S.-based banks had a total of 78,121 active branches nationwide at the end of May.

U.S. Bancorp, the parent company of U.S. Bank NA, led the way in bank closures, as the lender shuttered the largest number of active branches in the country in May with 133 closings, all in California, and no openings.

The Minneapolis-based lender increased the pace of branch closings again, after slowing down in the months before it completed its acquisition of San Francisco-based MUFG Union Bank NA in December last year.

Over the past 12 months, the bank has closed 194 branches and opened only seven new locations, according to data from S&P Global.

U.S. Bancorp consolidated dozens of branches while it transferred Union Bank customers to its own systems, Jeff Shelman, senior vice president and head of enterprise external communications for U.S. Bank, told S&P Global.

“Both Union Bank customers and U.S. Bank customers have gained access to branch and fee-free ATM locations through the consolidation,” Shelman wrote in an emailed statement. “Of the branches that were consolidated, more than [50 percent] were located within a half mile of another branch and [80 percent] were within a mile of another branch.”

Online Bank Transactions Leading to Fewer Physical Bank Locations

Meanwhile, Wells Fargo & Co. will close the second-largest amount of active locations, and has shuttered 38 branches while just only opening one.

Since early February, Wells Fargo has informed the OCC Bulletin of plans to close roughly 90 branches this year, with more on the docket, reported Best Life. OCC documents do not include closing dates, but banks are required to give at least 90 days’ notice ahead of branch closures.

“Branches continue to play an important role in the way we serve our customers,” a company spokesperson told Best Life.

“Additionally, customers use our wide range of digital capabilities for many of their banking needs and, as a result, more transactions are happening outside the branch. As such, we continuously evaluate our branch network in light of changing customer needs, the increase in the use of digital banking, and market factors.”

Regarding its consumer banking operations, Wells Fargo will continue to rationalize its branch footprint strategy, CFO Michael Santomassimo said on the company’s first-quarter earnings call.

“Our branch network will continue to be the key to the business. But our customers expect us to provide them with increasingly digitized and seamless banking experiences across all channels,” said Wells Fargo president and CEO Charles Scharf to investors.

PNC Financial Services Group, which closed the most branches in March and April, landed in third in May with 30 closings and two openings. The bank is planning to close 30 more branches across seven states in July and is shuttering a total of over 200 locations nationwide, this year.

“PNC recognizes that branches continue to play an important role for many customers when it comes to conducting certain transactions and holding important in-person financial conversations with our banking experts, which is why we routinely evaluate our branch network, together with our other available methods of banking, to determine if we are most effectively meeting our customers’ needs,” a spokesperson told Best Life.

They added, “After a careful review of our business model, PNC’s strategic goals and the potential impact to our customers, the decision was made to close the locations you have listed. We remain committed to delivering on our purpose to move all forward financially, and we are confident that we can meet or exceed our customers’ needs at nearby branch locations, alongside other available methods of banking.”

Santander Bank confirmed that it would shutter 17 locations in July and August, all in Massachusetts, as more of its clients do their business online, CBS News Boston reported. The lender currently has 165 branches in the Bay State.

“Like many industries, our customers’ preferences have changed, with more customers choosing to bank with us online,” Santander wrote in a statement to CBS.

“Therefore, we are reimagining the customer and employee experience by simplifying our processes, refining our branch footprint, and increasing our investment in digital capabilities to align with the evolving needs of our customers.”

The bank told Best Life, “Like many industries, our customers’ preferences have changed, with more customers choosing to bank with us online.”

“Therefore, we are reimagining the customer and employee experience by simplifying our processes, refining our branch footprint, and increasing our investment in digital capabilities to align with the evolving needs of our customers.”

Number of Bank Closures Varies Across the US

Bank branch closures varied by region throughout the country. The West recorded the largest number of net branch closings, with 158 locations being shuttered. The Northeast was at second with 32 closings, followed by the Southeast region with 20.

On a state level, California booked the most net closings at 138, while New Jersey logged 17 closings. New York will shutter 19 branches this summer, as lenders cut back on in-person banking for online transactions.

About 8,000 bank branches were in operation throughout New York in 2000, but that number was halved by 2022, according to FDIC data.

Nine states, Colorado, Connecticut, Delaware, Iowa, Kansas, Kentucky, Maine, Maryland, and Nebraska opened one branch each this year so far.

The Epoch Times reached out to U.S. Bancorp and Wells Fargo for comment.

Article cross-posted from our premium news partners at The Epoch Times.

Shareholders were hit with lowered projections, according to a report from Bank of America’s Global Research division on June 14, as Target faces the worse downgrade in three years.

Many customers have been boycotting Target over its pro-LGBT stance since May, ahead of June Pride Month, leading the retailer to take losses.

The backlash against corporate activists has forced many executives at other companies to think twice when it comes to potentially divisive issues due to fear of public backlash from all sides.

Target Offends Both Sides of Transgender Wars

A boycott by conservatives forced the retailer to remove or relocate several controversial items, including what was described as “tuck-friendly” children’s swimsuits, which are regularly worn by transgender individuals.

“It’s hideous. It’s exactly what a dude pretending to be a woman would wear,” comedian Chrissie Mayr told Fox News Digital.

Other products, such as a “Gender Fluid” mug and a variety of adult clothing with slogans such as “Super Queer” among other items, were also targets of the boycott.

The retailer had already sparked an earlier boycott in 2016 after it publicly allowed “transgender team members and guests to use the restroom or fitting room facility that corresponds with their gender identity.”

After a social-media backlash and protests by conservative shoppers, Target pulled some of the objectionable LGBT retail displays from its stores, causing some gay and transgender activists to attack the brand for backing down ahead of Pride Month.

The move even sparked employee safety issues at several locations, including bomb threats from LGBT supporters.

Retailer Loses Billions Over Conservative Boycott

Target had lost over $15 billion in losses at one point, as the protests began to affect its market value last month.

The company’s market value recovered slightly, to $63 billion, on June 15, after falling from its high of $74 billion at the beginning of May, right before the backlash, according to market data.

Meanwhile, Bank of America lowered Target’s price target from $180 to $145.

“Downside risks to our price objective are gross margin pressures from labor costs, investments, and the rapid growth of the lower-margin e-commerce channel as well as aggressive competition from competitors,” Bank of America analyst Robert Ohmes wrote in the report.

Target’s CEO also warned last month in an earnings call that the company was expecting $500 million in losses for 2023, blaming violent crime and a surge in shoplifting in its stores.

“Worsening shrink rates are putting significant pressure on our financial results,” CEO Brian Cornell told investors, adding that “violent incidents are increasing” at Target and at other retailers.

Last week, Citi analyst Paul Lejuez lowered Target’s stock to “neutral” from “buy” and recommended that investors put their money into its rival Walmart, which he predicted would begin absorbing its market share.

“We believe Walmart is likely to continue gaining market share, and Target’s high exposure to discretionary sales will not serve them well in the current macro backdrop,” Lejuez said a note.

To make things worse,  JPMorgan Chase downgraded Target’s stock at the start of the month, as analysts predicted a decline in sales due to persistent inflation.

On June 5, KeyBanc Capital Markets reduced the retailer’s shares to “sector weight” from “overweight,” after the debt-ceiling agreement and the resumption of student loan payments led to projections of a sizable headwind regarding shoppers’ future discretionary spending.

Article cross-posted from our premium news partners at The Epoch Times.

Dimon warned at a May 22 Q&A Investor Day meeting at JPMorgan Chase that interest rates were likely to go higher from here and rise to as much as 7 percent.

He noted that there was much uncertainty about the health of regional banks and that rising yields in the money market have led to a steady outflow of deposits, bringing their balance sheets to dangerous levels.

A combination of Federal Reserve rate hikes and quantitative tightening is adding more fuel to the regional bank crisis. JPMorgan controls more than 13 percent of the nation’s deposits, with a lock on 21 percent of all credit card spending.

Under Dimon, the banking giant has gobbled up more of the lending market with each small bank failure, since the financial panic in March.

JPMorgan investors were told that they should expect to benefit from rising interest rates because of its recent acquisition of First Republic Bank. Dimon told meeting attendees, that net interest income this year would be revised from $81 billion to $84 billion, after the bank bought out the profitable operations of its smaller competitor in a deal with the FDIC.

Dimon Predicts Even Higher Interest Rates

Dimon addressed the central bank’s raising of the overnight rate and said there was still too much liquidity in the system.

The JPMorgan CEO said that the credit situation will probably get worse and that higher interest rates are likely, contradicting popular opinion that the Fed has reached the upper limit of its policy hikes. However, he assured investors that the U.S. economy was fine for now and that a “mild recession” would not hit until later in the year.

“Everyone should be prepared for rates going higher from here,” Dimon said, adding that capital is already tightening up and that the Fed funds rate would surge past its current level of 5 percent, to as high as 6 or 7 percent.

“There’s a chance you could have rates ticking up and not just 3.78,” said Dimon, calling 7 percent interest rates an “outlier but possible.”

Fed’s Quantitative Tightening Policy May Cause Another Bank Liquidity Crisis

With the Fed Funds rate at 5.25 percent and with Treasuries and money market funds offering similar yields, smaller banks are now buckling under the pressure. This could spark another disastrous bank deposit run from both checking and saving accounts.

Meanwhile, the Fed’s quantitative tightening policy is causing its monetary reserves to shrink and drying up the supply of available liquidity for banks, said Dimon.

The JPMorgan chief said that higher capital charges from the Fed would hurt the smaller banks, but not their larger peers like JPMorgan. He said that smaller banks face more problems on the deposit side, as they are less likely to absorb a financial blow from a lack of liquidity.

The American banking sector had benefited from low loan defaults over the last few years, due to almost zero interest rates and the flood of government stimulus money during the pandemic.

For two decades, lenders were encouraged to buy up low-yielding securities, but the vulnerable regional banks are now being squeezed, as yields soar and fixed-income and loan prices plunge. Deposits will now have to shift into treasuries, or face liquidation in a future bank run, said Durden.

“We haven’t been through Quantitative Tightening. So we really don’t know what’s going to happen to deposits at all. And that’s why I’ve been quite concerned about that. I’m probably more concerned about quantitative tightening with anybody in this room,” warned Dimon.

“We’ve never had QT before. It just started, okay? And you see huge distortions in the marketplace already.”

“We’ve never had the Fed in the market like this … They have $2.3 trillion basically lent out to money funds. And I don’t know the full effect of that. And obviously, that’s a direct deduction from deposits are rolling out it made sense to do,” he said.

“So I think people should build into their mindset that they may have to move deposit beta more than they think and manage that. So I mean, if I was any bank or any company, I’d be saying, can you handle higher interest rates and surprise in deposits, etc?” Dimon continued.

Commercial Real Estate Sector Exposed To Credit Crunch

Before the failure of Silicon Valley Bank set off the recent bank crisis, uninsured deposits were generally not seen as a problem, said Dimon, but the regulatory moves made in response will lead to tighter credit for smaller lenders.

This will in turn lead to even tighter credit from lenders to customers.

“You’re already seeing credit tighten up because the easiest way for a bank to retain capital is not to make the next loan,” he explained.

As banks raise the bar for lending, the commercial real estate sector is expected to suffer the most from tighter credit, which may spread to the wider economy. About 80 percent of commercial real estate loans are granted by the regional banks, which have been rattled by the monetary policy of the Fed and the outflow of capital, according to Goldman Sachs.

“There will be a credit cycle. My view is it will be very normal” with the exception of real estate, Dimon said, and that “there’s always an off-sides.”

He explained that “the off-sides in this case will probably be real estate. It’ll be certain locations, certain office properties, certain construction loans. It could be very isolated; it won’t be every bank.”

Commercial properties in upscale markets, like San Francisco and New York, are already losing money, as workers increasingly prefer to work remotely.

Article cross-posted from our premium news partners at The Epoch Times.

Several top policymakers have publicly spoken in favor of returning to the hawkish policy of the previous year at the next meeting in June, reported Fox Business.

However, the central bank has come under increasing fire for raising recession risks by aggressively boosting interest rates, which has caused worries on Wall Street regarding a deep recession.

Many top CEOs and economists have criticized the Fed’s decision making in recent weeks and for not acting early enough when price pressures were still building.

The Fed raised the borrowing rate for the tenth consecutive time to 5 to 5.25 percent in May, the highest since 2007. Still, inflation unexpectedly jumped 0.4 percent to 4.9 percent in April after months of declines.

The U.S. inflation rate is more than twice the Fed’s 2 percent target but well below the peak of 9.1 percent in June 2022. The labor market also remains tight, with unemployment falling to 3.4 percent last month, the lowest rate since 1969.

After prematurely stating that inflation was getting under control earlier this year, Fed policymakers have warned that inflation was still too high for a pause in the central bank’s tightening campaign, despite pleas from some economists to take a wait-and-see approach.

Despite the recent declines in inflation, some central bank officials say that another hike is increasingly likely.

“I think we’re going to have to grind higher with the policy rate in order to put enough downward pressure on inflation and to return inflation to target in a timely manner,” St. Louis Federal Reserve President James Bullard said in a Monday speech delivered to the American Gas Association in Florida.

“I’m thinking two more moves this year—exactly where those would be this year I don’t know—but I’ve often advocated sooner rather than later.”

Dallas Fed President Lorie Logan agreed that inflation was “much too high” and not cooling quickly enough to justify a pause in interest rate hikes at the Fed monetary policy meeting in June.

“After raising the target range for the federal funds rate at each of the last 10 FOMC meetings, we have made some progress,” she said in remarks prepared for delivery to the Texas Bankers Association in San Antonio.

“The data in coming weeks could yet show that it is appropriate to skip a meeting. As of today, though, we aren’t there yet.”

Minneapolis Fed President on the Fence

Minneapolis Fed President Neel Kashkari, a member of the Federal Open Market Committee, told CNBC on May 23 that although he is open to pausing interest rates at the next policy meeting, he is still open to a rate hike.

He stated that would not take future rate hikes off the table, even if officials choose to pause the increases next month.

“I think right now it’s a close call, either way, versus raising another time in June or skipping,” he said during the interview with CNBC.

“What’s important to me is not signaling that we’re done,” he said, adding, “if we were to skip in June, that does not mean we’re done with our tightening cycle; it means to me we’re getting more information. Do we then start raising again in July, potentially?”

“The cost of not getting inflation down to 2 percent is much higher to Main Street than the cost of getting it down to 2 percent,” Kashkari continued.

“So I would rather err on being a little bit more hawkish rather than regretting it and having been too dovish.”

However, he said he was sensitive to the delayed impact of the Fed’s rapid rate increases and a potential credit crunch due to the ongoing banking crisis, which began in March.

These latest comments from top Fed officials have raised the probability of an 11th rate hike in June, even though investors have bet on the Fed taking a break from raising rates for that month. However, the probability that the Fed will raise rates in June rose to 26.8 percent yesterday, up from 17.4 percent the previous week, according to data from CME Group’s FedWatch.

Powell Faces Critics

Meanwhile, Fed Chairman Jerome Powell told the Perspectives on Monetary Policy panel at the Thomas Laubach Research Conference on May 19 that the Fed funds rate may not need “to rise as much” to achieve its inflation goals but agreed that prices were still too high.

After the last meeting in early May, Powell said that the Fed may decide not to raise rates so to better study the effects of the rapid increases.

“A decision on a pause was not made today,” said Powell, reiterated that the Fed’s future policy decisions would “be driven by incoming data, meeting to meeting.”

Powell said that the tightening of credit standards after the recent bank failures could weigh on economic growth, hiring, and inflation but that the Fed’s financial stability tools can calm any volatility in the banking system.

Powell said that “overall the banks and the banking system are strong and resilient,” but acknowledged that the disruption to the financial sector from the series of bank runs could impact the central bank’s policy decisions. The chairman has been repeatedly attacked for misjudging the rise in inflation as “transitory” in 2021.

He was then forced to go on the aggressive interest rate hike spree within months of such a stance, as consumer prices rose at the fastest pace since the early 1980s.

Musk Weighs In

“My concern with the way that the Federal Reserve is making decisions is that they are just operating with too much latency,” Twitter CEO Elon Musk and a major critic of Powell, told CNBC on May 23.

“Basically, the data is somewhat stale, so the Fed was slow to raise interest rates. And now I think they’re going to be slow to lower them.”

Musk called the Fed’s rate hikes a ‘brake pedal’ on the economy that is making things too expensive for those using credit, which will have “downstream effects” on the economy.

Mohamed El-Erian, chief economic adviser at Allianz, told Bloomberg on May 23 that “we are still in the hospital because there are problems with the banking model of certain banks.”

El-Erian is concerned over the situation faced by regional American banks and is opposed to pushing ahead with another strong rate hike too quickly, which will hit businesses tied to the commercial real estate industry.

“The key issue now is to allow the patients that are in the hospital to come out. If there’s another [Fed] policy mistake, the patient goes back into the ICU,” he added.

Article cross-posted from our premium news partners at The Epoch Times.

The better than expected April 14 earnings report beat most analysts’ estimates for the quarter, as depositors placed their money into the larger banks in the wake of the industry’s crisis.

The bank saw “significant new account opening activity” and deposit inflows, according to CFO Jeremy Barnum. Wells Fargo and Citigroup also saw positive earnings report last week.

JP Morgan’s diversified businesses and trillions of dollars in assets also cushioned it from the crisis that slammed regional and smaller lenders.

America’s largest bank has been watched closely for signs on how the industry is faring, after a series of bank runs led to the collapse of Silicon Valley Bank and Signature Bank in early March.

JPMorgan played a major role in propping up First Republic, which faced a similar fate, by leading efforts to inject it with $30 billion in liquidity.

JP Morgan Surpassed Expectations During Banking Crisis

The banking giant announced a 52 percent boost in overall profits to $12.62 billion, or $4.10 per share, in the first quarter.

This included $868 million in losses on securities, but profits rose 22 cents, when earnings were not taken into account, to $4.32 per share after adjustments.

JP Morgan gained $50 billion in deposits at the end of March, while the rest of the industry saw a 3 percent decline in the first three months of 2023.

The lender’s fixed income trading business also posted $5.7 billion in profits, but equities trading revenue was at $2.7 billion, which was below earlier estimates.

The inflows of liquidity showed “an intra-quarter reversal of the recent outflow trend as a consequence of the March events,” Barnum said.

However, JPMorgan saw a 7 percent decrease in total deposits from a year ago to $2.38 trillion, but the recent inflows allowed deposits to climb by 2 percent when compared with the previous quarter.

Meanwhile, the JP Morgan CFO told shareholders that the bank had increased its forecast for net interest income to $81 billion this year, excluding profits from markets, from an earlier $74 billion.

The Federal Reserve’s hawkish interest rate policies boosted the lender’s net interest income last quarter by 49 percent to $20.8 billion, causing companywide revenue to rise 25 percent to $39.34 billion.

Barnum explained that the boost was mostly driven by expectations that the lender would have to pay less to depositors later this year if the Fed cuts rates.

Dimon Optimistic on Bank Industry Health

Although the banking sector crisis is far from over, JP Morgan CEO Jamie Dimon expects the disruptions caused by the bank failures last month to eventually pass.

“The U.S. economy continues to be on generally healthy footings—consumers are still spending and have strong balance sheets, and businesses are in good shape,” CEO Jamie Dimon said in a release.

“However, the storm clouds that we have been monitoring for the past year remain on the horizon, and the banking industry turmoil adds to these risks,” he explained, adding that the industry could rein in lending as banks become more cautious ahead of a likely recession.

JPMorgan put aside loan loss provisions of $2.3 billion, a 56 percent increase from last year, despite Dimon’s prediction that a recession “may still be pushed off a little bit.”

“You still see sticky inflation and then in front of us issues like higher rates, the war in Ukraine—those are still substantial concerns,” he said.

Although JP Morgan saw growth in earnings, the overall investment banking sector saw revenue tumble by 24 percent to $1.6 billion, as IPO markets started to slacken.

“Our pipeline is relatively robust,” but is still “sensitive to market conditions and the economic outlook,” Barnum said.

“We expect the second quarter and the rest of the year to remain challenging,” he added.

JP Morgan’s retail customers have been slow to pull their money out until recently, unlike its commercial clients, who have been pulling deposits for the past year as interest rates rose.

Retail clients are now trying to gain higher yields, causing deposits in the bank’s retail banking division to drop 4 percent in the first quarter.

Bank Deposits And Loan Markets Still Shaky

Despite a surge of new deposits in the aftermath of the recent bank failures, Barnum warned that the bank could see outflows in the future.

“It’s a competitive market and it’s entirely possible that people temporarily come to us, and then over time, decide to go elsewhere,” Barnum explained, but that the new deposits were not a big factor in JPMorgan’s optimistic projection of a boost in revenue.

Dimon agreed, saying “there’s no pricing power that the bigger banks have.”

Analysts are still waiting to see if JPMorgan and other major U.S. banks will tighten lending standards ahead of an expected recession, which would weaken economic growth this year by making it harder for consumers and businesses to borrow money.

Dimon cautioned that although a banking crisis could cut off loans to businesses and impact consumer spending, the American economy is still robust for now.

Barnum added that while more customers are making late payments, delinquencies are not yet a problem.

The CFO also admitted that the industry could start reducing loans to the commercial real estate sector, but JPMorgan is not looking at changing its underwriting standards there any time soon.

Reuters contributed to this report. Article cross-posted from our premium news partners at The Epoch Times.

Silicon Valley Bank (SVB) Financial Group, a bank which lends primarily to tech companies, told investors on Mar. 9 that it was forced to sell almost $2 billions in shares to raise additional capital to help offset bond sale losses.

The news quickly triggered massive losses across the banking sector and raised concerns that the Federal Reserve’s interest-rate hikes were preventing banks from raising capital.

Before last year, when interest rates were near zero, large banks were buying up U.S. Treasurys and bonds, but the rise in the federal fund rate has since weakened their value, while banks sit on increasing losses.

Since banks tend to hold large portfolios of bonds, their decline is normally not a problem unless they are forced to sell them.

U.S. government bonds surged after the California lender sold off shares to cover bond losses, leading to more worries over the banking sector’s debt holdings.

Bank Stock Values Plunge Across the Board

The news from the tech industry lender quickly caused a knock-on effect on Thursday, as banking stocks fell at their fastest pace since the first months of the pandemic, taking Wall Street’s major indexes down with them.

SVB shares tumbled more than 60 percent and lost another 20 percent in after-hours trading, in the worst decline in the sector, after CEO Greg Becker admitted the bank could be dealing with problems for the foreseeable future.

Meanwhile, America’s four largest banks lost more than $50 billion in market value at the end of trading on Mar. 9.

Shares of JPMorgan Chase fell 5.4 percent, while Bank of America took a 6.2 percent hit, Wells Fargo was down 6.2 percent, and Citigroup tumbled 4.1 percent.

Bank stocks in Europe and Asia sold off sharply the following day, as news surrounding SVB Financial spread to markets across the world.

The Euro Stoxx Banks Index witnessed its worst day since June 2022, led by Deutsche Bank, which saw an 8 percent loss, followed by Société Générale, HSBC, ING Groep, and Commerzbank, which all fell more than 5 percent.

“Lots of chatter today about the possibility of generalized U.S. banking system stress due to SVB troubles. Three summary things on this: While the U.S. banking system as a whole is solid, and it is, that does not mean that every bank is,” stated economist Mohamed A. El-Erian in a tweet.

“Due to the volatility in yields after the prior protracted period of leverage-enabling policy, the most vulnerable currently are those vulnerable to both interest rate and credit risk. Contagion risk and the systemic threat can be easily contained by careful balance sheet management and avoiding more policy mistakes,” he continued.

Meanwhile, U.S. and European bond yields fell to their lowest level in weeks, after investors bet that turmoil in the bank sector could reduce the ability of the Fed to keep hiking interest rates.

Silicon Valley Lender’s Bonds Lose Value to Rising Interest Rates

The interest-rate hikes over the past year have also caused value of its bonds to fall, particularly those that took many years to mature, forcing the bank to reinvest the proceeds from its sales into shorter-term assets.

SVB has suffered significant losses on its portfolio, which was heavily invested in U.S. Treasurys and mortgage-backed securities, which have all taken a beating.

The 40-year-old bank was forced into a fire sale of its securities on Thursday, dumping $21 billion worth of holdings at a $1.75 billion loss while raising $500 million from venture firm General Atlantic, according to a financial mid-quarter report on Mar. 8.

SVB additionally reported more than $90 billion in held-to-maturity securities.

Its recent losses have caused American startup firms, particularly venture-backed tech and life sciences companies, to feel the pinch, as the bank caters heavily to these new firms.

Higher interest rates, fears of a recession, and a tepid market for initial public offerings have made it harder for new startups to raise additional capital in the past year.

The lender’s 2022 third quarter report stated it was partnered with nearly half of all venture-backed tech and health care companies based in the United States.

“The failure of @SVB_Financial could destroy an important long-term driver of the economy as VC-backed companies rely on SVB for loans and holding their operating cash. If private capital can’t provide a solution, a highly dilutive gov’t preferred bailout should be considered,” warned Pershing Square CEO Bill Ackman in a tweet.

“After what the Feds did to @jpmorgan after it bailed out Bear Stearns, I don’t see another bank stepping in to help @SVB_Financial,” he added.

Investors were worried ahead of today’s employment report from the Department of Labor, which they hope will provide some hint on the Fed’s next policy moves.

SVB Reassures Investors That Things Are Fine

The collapse of SVB’s stock value comes shortly after a key lender for the cryptocurrency industry, Silvergate Capital, announced liquidation plans on Mar. 8, following the implosion of FTX, which used the bank to transfer customer funds.

However, the bank said in its letter to investors that it had minimal exposure to crypto, but analysts are still concerned that not all is well at SVB.

Becker reassured investors that their assets were safe and that the stock sale was only an attempt to increase financial flexibility, strength, and profitability at the bank, but the current market situation has caused pressure to its “balance of fund flows.”

The bank cited higher interest rates and “elevated cash burn from our clients” at a historically elevated level and less investments from venture capital, are the primary reasons for raising new capital.

Becker said the bank has “ample liquidity” to support its clients “with one exception: If everybody is telling each other that SVB is in trouble, that will be a challenge.”

He asked clients to “stay calm. That’s my ask. We’ve been there for 40 years, supporting you, supporting the portfolio companies, supporting venture capitalists.”

SVB’s mid-quarter update reported a low ratio of loans to deposits, at 43 percent, which leaves little protection in the wake of a share-price selloff over the coming days.

If startups panic and begin pulling funds from SVB due to concern about its financial health, this could exacerbate the mismatch in deposits and withdrawals, increasing pressure on the bank.

Still, one expert believes the problem goes deeper than just investors getting spooked by SVB and that it is more systemic.

“Why this sudden meltdown in bank stocks? Small banks face a double whammy: Less ”financial liquidity” (reserves) in the system, disproportionately affecting them, a tougher funding landscape, with plenty of safer and higher-yielding alternatives for depositors. This is the real issue, [in my honest opinion],” said Alfonso Peccatiello, founder and CEO of TheMacroCompass, in a tweet.

Article cross-posted from our premium news partners at The Epoch Times.

Article cross-posted from our premium news partners at The Epoch Times.

The price of copper has dropped by 7.1 percent week over week, according to a Twitter post from Hedgeye, an online investment research and financial media company.

Copper fell by as much as 4.9 percent to $7,291.50 a ton on the London Metal Exchange (LMEX)—its lowest level since November 2020 after recovering to $7,552 a ton by 12:43 p.m. BST.

The mineral had already been hit by a 4.2 percent slump yesterday going below $8,000 a ton, reaching its lowest close in 19 months.

Meanwhile, aluminum lost 0.7 percent in value, while nickel was down 2.2 percent, and lead climbed 1.9 percent.

This is major turn from March, when the LMEX Index of six strategic metals rose to an all-time high after the Russian invasion of Ukraine sparked fears of global fuel and commodities shortages.

This last quarter witnessed the worse results for metals since the 2008 Great Recession, with the current month bringing little relief, as the risk of a recession dominates market sentiment.

Investors are worried over shake ups in the supply chain, such as the Russian sanctions-induced fuel crisis in Europe, a faltering American economy, and severe central government-induced lockdowns in Mainland China.

Companies hoped that China would be a major source for demand for commodities, after the CCP had promised to restart growth in the second half of 2022.

Meanwhile in America, there are also increasing concerns over the Federal Reserve’s aggressive and delayed interest rate policy, which may instigate a severe and sustained downturn, while trying to tame rising inflation.

The central bank’s attempt to curb demand is already beginning to curb U.S. economic growth.

The meeting minutes from the Federal Reserve’s last FOMC conference on June 14 came out this morning, suggesting another 50 or 75 basis point move in July.

“In discussing potential policy actions at upcoming meetings, participants continued to anticipate that ongoing increases in the target range for the federal funds rate would be appropriate to achieve the Committee’s objectives,” the minutes stated.

“In particular, participants judged that an increase of 50 or 75 basis points would likely be appropriate at the next meeting.”

“Participants recognized that policy firming could slow the pace of economic growth for a time, but they saw the return of inflation to 2 percent as critical to achieving maximum employment on a sustained basis,” the board members admitted.

Analysts are now shifting their focus from inflation to whether and when a U.S. recession will hit, with the chances of an economic contraction now standing at 38 percent, according to Bloomberg Economics.

Falling commodity prices are a key sign that there will likely be a recession in the United States this year, according to Joe Terranova, chief market strategist at Virtus Investment Partners to CNBC on July 5.

He believes that a recession is likely to happen this year, rather than in early 2023, as others have suggested.

“It’s obvious to us that the recession conversation shouldn’t be about one in 2023,” Terranova said. “It should be about one in 2022—if we’re not already in one right now.”

Investors should keep an eye on oil, copper, lumber, agriculture, and soft commodity prices, he said, noting that they are a potential harbinger of recession, as a major drop would signal deflationary pricing.

Before every recession in the past three decades, falling copper prices have been a sign of a pending economic crisis.

“The calendar has turned into July, and the market isn’t pricing based on inflation, it’s pricing based on an expected recession,” Terranova said.

Oil prices fell in June, after topping $120 a barrel in March and April, with Brent crude dropping 13 percent at $104 a barrel today, while West Texas International crude fell 16 percent to hover just over $100 a barrel.

Lumber futures have been down at least 27 percent over the last three months, as rising housing costs and mortgage rates curb demand for building materials.

If rising inflation continues and an economic downturn hits, demand will take a severe fall.

Analysts anticipate investors rushing to the U.S. dollar as a safe haven during the period of market instability, adding further pressure.

Yes, it’s time to buy precious metals for wealth and retirement protection.

The chance that the American economy will fall into a recession by early 2024 has risen to 72 percent, according to a study published on June 15 by Bloomberg Economics.

The report came out just as the Federal Reserve made its largest hike in interest rates since 1994 in an attempt to cool down inflation. In February 2022, the same models used by Bloomberg downplayed the chance of a recession at the beginning of 2024, forecasting a nearly zero percent chance for such a decline. By March, the likelihood of a downturn had risen to an estimate of less than 20 percent.

Consumer sentiment is at its lowest level among records dating back to 1978, Bloomberg reported, and sentiment is more pessimistic than at any time since the Great Recession of 2007–2009.

The University of Michigan economic sentiment index fell to 50.2 in June, the worse since the poll was first taken, with inflation as the biggest motive for the negative outlook.

The Federal Reserve raised benchmark interest rates by 75 basis points on June 15, following previous increases of 50 basis points and 25 basis points. Fed Chairman Jerome Powell suggested that the central bank’s next rate hike will be 50 or 75 basis points but that another 75-basis-point increase after that would not be likely.

Powell said he believes that as of now, there is “no sign” of a major economic slowdown, with his fellow central bank policymakers largely in agreement with his assessment. Meanwhile, many investors are currently betting on a poor outlook in the next several months, with stocks and bonds plunging to a low.

The S&P 500 is down about 20 percent from its January 2022 high, while the average mortgage rate has almost doubled to 6 percent, the highest rate since 2008.

Inflation Hitting ‘Main Street’

Many households are suffering from rising grocery, gas, and utility bills, with some dipping into their savings and retirement funds to make ends meet amid the highest rate of inflation in more than four decades. The Biden administration, which is taking criticism for its handling of the U.S. economy, is pointing to and echoing the Fed’s assessment.

“We have problems that the rest of the world has, but less consequential than the rest of the world has because of our internal growth and strength,” said President Joe Biden in Tokyo on May 23.

“This is going to be a haul. This is going to take some time,” he said.

Many Democrats fear a rout in the upcoming 2022 midterms, while Biden is facing a tough 2024 reelection bid if the economy continues at the current trajectory.

The administration is looking at various solutions, including a windfall tax on oil profits, a rapprochement with the Saudis for more oil, and a pledge to remove the Trump-era tariffs against China to lower import costs.

White House officials have repeatedly denied that rising inflation is a result of the administration’s policies and have at times blamed the Russians, the CCP (Chinese Communist Party) virus, commonly known as the novel coronavirus, the recent Chinese lockdowns, U.S. oil companies, and even former President Donald Trump for the financial woes facing Americans.

The administration has also stated that the economic models cited have projected widely varying results and that the health of the American economy is better than it appears to be.

Biden has touted the 3.6 percent unemployment rate as a success of his economic policies after two years of CCP virus-related lockdowns and government mandates, which put more than 20 million Americans out of work. However, the president’s June 2022 approval rating is at an all-time low of 38.9 percent, according to the same University of Michigan poll.

The White House is currently betting that there will still be time for an economic upswing after it hits a recession in early 2023, before the 2024 presidential election.

Image by Gerd Altmann from Pixabay. Article cross-posted from our premium news partners at The Epoch Times.