For the week ending May 10, total U.S. commercial bank deposits declined by $26.4 billion, or 0.15 percent, to roughly $17.123 trillion, the lowest level since July 2021. That represented the third consecutive week of rising deposit outflows as the fallout from the banking turmoil in early March persists.

Large commercial banks (negative $21 billion) and small institutions (negative $2.6 billion) both saw declining deposit volumes on a seasonally adjusted basis. In addition, foreign-related banks reported a $2.1 billion drop in deposits.

Since the collapse of Silicon Valley Bank and Signature Bank, the Fed’s H.8 data show that total deposits have plunged about $476 billion.

The same report found that loans and leases decreased by $3.3 billion.

Despite the downward trajectory in deposits, CIBC Capital Markets Inc. economists don’t believe this is a worrying trend, writing that the latest figures paint a portrait of a banking system normalizing following sizable pandemic-era liquidity injections.

“Some of what we’re seeing is more a reversion to more normal conditions after ballooning liquidity during the pandemic,” bank economist Avery Shenfeld wrote in a recent research note. “The common perception is that a draining of deposits causes a drop in loans.

“While that’s a plausible story for any one institution, in the aggregate, there’s also a cause and effect in the other direction, in which a decline in loans outstanding is what actually causes a drop in aggregate deposits.”

Meanwhile, additional central bank data suggest that banks are still tapping into the Fed’s emergency lending facilities.

The institution’s H.4.1 figures—the Fed’s balance sheet—confirm that loans from the Bank Term Funding Program (BTFP) climbed to a fresh high of $87 billion for the week ending May 17.

Soon after the SVB and Signature failures, the Fed launched the BTFP, which allows borrowers to use Treasury and agency mortgage-backed securities as collateral for loans up to one year.

But while the raw data suggest that the banking system is still facing considerable stress, some public policymakers and market analysts assert that the worst is over.

Atlanta Fed Bank President Raphael Bostic believes the market stresses are subsiding, telling the regional central bank’s Financial Markets Conference on May 16 that “we’ve not seen this contagion take place.”

Fed Chair Jerome Powell reiterated at the Perspectives on Monetary Policy panel at the Thomas Laubach Research Conference on May 19 that the financial stability tools the central bank employed at the onset of the banking turmoil helped “calm conditions.”

Western Alliance Bancorporation recently supported these arguments after a May 15 Securities and Exchange Commission (SEC) filing confirmed that deposits rose by more than $2 billion in the three months to May 12.

Shares of the regional bank tumbled 2.44 percent during the May 19 regular trading session, but the stock recorded a weekly gain of about 25 percent.

U.S. regional bank stocks slumped to finish the trading week after two sources close to the situation told CNN that Treasury Secretary Janet Yellen warned bank CEOs at a recent meeting that more mergers might be necessary.

Yellen met with more than two dozen bank CEOs and executives at a meeting convened by the Bank Policy Institute (BPI) on May 18. Despite a statement reaffirming the strength of the banking system, the Treasury Department didn’t mention these remarks.

The KBW Nasdaq Regional Banking Index fell a little more than 2 percent, while PacWest Bancorp declined almost 2 percent.

If Yellen’s remarks are accurate, new mergers will continue the trend of declining competition in the U.S. banking system. At the end of 2022, there were 4,135 commercial banks, down from the peak of 14,469 in 1983, representing a 71 percent decline over four decades, according to the Federal Deposit Insurance Corp. (FDIC).

The Treasury’s cash balance in its bank account at the Federal Reserve is also heading lower as the department tries to prevent a default on the federal government’s debt. The latest update to the Treasury General Account (TGA) Opening Balance for May 18 stood at $68.332 billion, down from $94.629 billion and $316.381 billion at the start of the month.

Article from our premium news partners at The Epoch Times.

The failure of SVB is the second-largest bank failure in U.S. history, behind only the failure Washington Mutual in September 2008. So, are the failures of SVB and Signature only isolated problems without systemic contagion, or do they represent the proverbial canary in the coal mine, warning of greater systemic troubles ahead? Here is a summary of the causes behind the failures of both banks, the response by the federal banking regulators, and the potential consequences.

Impact of Federal Reserve Policies

The Fed’s policy of artificially low interest rates and massive purchases of U.S. government debt since 2008, especially since 2020, has encouraged banks and businesses to engage in speculative activities that have not been driven by true market forces. This macro-financial environment can lull banks into a false sense of acceptable market and interest-rate risk.

With interest rates near zero from March 2020 to March 2022, along with an extraordinary 41 percent increase in the M2 money supply during that time period, the Consumer Price Index (CPI) reached a 41-year high in 2022. This prompted the Fed to abruptly change course in March 2022 with rapid increases in its Fed Funds Rate from 0.25 percent to 4.75 percent in February 2023. Such a swift increase in interest rates over the past year would require banks to adjust their asset-liability management to protect against interest-rate duration mismatches between assets and liabilities, known in banking terms as “duration risk.”

In the case of SVB, it was guilty of gross mismanagement of its duration risk over the past year, as it reported an abnormally high 41 percent of its total assets in Held-to-Maturity (HTM) securities, amounting to $91 billion at the end of 2022. These HTM securities, while mostly long-term U.S. government securities with little or no credit risk, had substantial duration risk in a rising-interest-rate environment, as fixed-rate securities fall in price when interest rates rise. This is how SVB got hammered, as it was forced to sell its HTM securities at big losses to cover the run-on-cash withdrawals by its deposit customers in the days leading up to its closure.

Flawed Regulatory Ratios for Assessing Bank Capital

Thomas Hoenig, a former head of the Federal Reserve Bank of Kansas City and former vice chair of the Federal Deposit Insurance Corporation (FDIC), made insightful comments in a March 17 article in the Wall Street Journal. He said that the use of the government-derived “risk-weighted capital” in evaluating a bank’s capital position is a major problem because it does not describe real, tangible capital. In the case of SVB, Hoenig notes in a March 10 article that SVB’s regulatory risk-rated “Tier 1 Capital Ratio” was around 16 percent, a presumably safe capital position, but the more market-realistic “Tangible Capital-to-Asset Ratio” was only around 5 percent. Hoenig is concerned that the use of risk-weighted capital ratios, adopted by bank regulators around the world in 2014, will lead to more problems in the banking sector. Hoenig makes this point in his Wall Street Journal article.

“The other thing about risk weight,” Hoenig said, “is that it’s a political process. It’s not a market process. The market no longer determines capital in the banking, industry. It’s now politicians, lobbyists and the regulators who have to battle it out among themselves. Therefore, you get these nonmarket solutions like risk-weighted capital. And banks are incentivized to increasingly leverage their balance sheets.”

Questionable Bank Regulator Oversight

The deposit runs that occurred with both SVB and Signature Bank raise serious questions about the competence and/or possibly even the corrupt complicity of the regulators with oversight responsibility for the two banks. While the management of the two banks appropriately deserve blame for their failures, the relevant bank regulators also need to be held accountable for missing obvious regulatory red flags from such large banks well in advance of their failures.

In addition to the asset-liability duration mismatch at both banks, other red flags included abnormally high growth rates and concentrations in risky business sectors (green energy technology startups at SVB and crypto exposures at Signature) and extraordinarily high amounts of uninsured deposits.

Looking at data for the end of 2022, SVB had only 12.5 percent of its total deposits within the FDIC-insured limit of $250,000 per deposit account, which indicates that a whopping $151.5 billion of its total deposits of $173.1 billion were uninsured. A similar situation existed at Signature Bank, with only 10.3 percent of its total deposits of $88.6 billion under FDIC deposit insurance, indicating $79.5 billion in uninsured deposits. Thus, the combined uninsured deposits of both failed banks amounted to $231 billion, which should have alerted the banking regulators of duration risk and potential liquidity risk.

It is unclear at this point how these regulatory red flags were missed by the relevant regulators. The primary financial regulators for SVB and Signature Bank were their respective district Federal Reserve banks, i.e. the Federal Reserve Bank of San Francisco (SF Fed) for SVB and the Federal Reserve Bank of New York (NY Fed) for Signature. The FDIC was also involved in its traditional role as regulatory supervisor over the banks’ deposit insurance. The state banking regulators in California and New York also conduct bank examinations.

Because of the unexpected large-scale deposit run on Silicon Valley Bank that resulted in its failure, Federal Reserve Chair Jerome Powell announced on March 13 that the Fed’s vice chair for supervision, Michael Barr, would lead a six-week review of the Fed’s regulatory supervision surrounding SVB. The Fed has committed to releasing Barr’s report by May 1.

Concerning Reactions by Federal Banking Regulators

The response to the failures of SVB and Signature Bank, and more recently to the troubled First Republic Bank, is extremely concerning for several reasons.

• Bailout of Uninsured Deposits: The decision of federal regulators (the U.S. Treasury, the Federal Reserve, and the FDIC) to guarantee funds for all depositors of both failed banks makes a mockery of the FDIC’s $250,000 deposit-insurance limit and signals a new acceptance by the federal regulators to bail out all depositors in any bank failure. This effectively means that the FDIC will now be expected to cover all of the deposits in the U.S. banking system.

At the end of 2022, the FDIC’s Deposit Insurance Fund (“DIF”) was $128 billion in comparison to the $17.7 trillion in total bank deposits in the entire U.S. banking system. The total deposits of SVB alone ($173 billion on Dec. 31, 2022) are enough to wipe out the entire balance of the DIF. So, how will deposits in excess of the Deposit Insurance Fund be funded? On March 12, a joint statement by U.S. Treasury Department, the Federal Reserve, and the FDIC announced that any losses to the DIF would be recovered by a “special assessment on banks.” Such a special assessment means that the entire U.S. banking system will need to raise fees and/or charge higher interest rates on its customers in order to cover the cost of the newly mandated special assessment to cover the mismanagement of failed banks.

• Creation of a New Emergency Lending Program for Banks: On March 12, the Federal Reserve announced the creation of a new emergency lending program for banks, the “Bank Term Funding Program” or “BTFP.” This new program will allow banks to obtain cash from the Fed’s discount window with one-year term loans backed by collateral comprising U.S. government securities. In addition to providing yet more government support to the banking system, the BTFP also allows banks to pledge their collateral at par. This is another misguided Fed policy action, as it allows banks to offload securities with below-par market values onto the Fed at par value. This will not only encourage less prudent risk management by banks, but will also likely result in further expansion of the Fed’s already massive $8.6 trillion balance sheet.

Within the first three days of its start, banks had already borrowed $11.9 billion from the new BTFP. For the week ending March 17, banks had borrowed another $148.2 billion from the Fed’s 90-day discount window, the largest weekly amount since September 2008.

• Inability to Sell the Failed Banks: Typically, the FDIC will have a buyer lined up ahead of the closing of a failed bank, typically another bank in good standing, but, as of Monday, the assets of neither bank have been sold. The market rumors indicate that the FDIC has, in fact, received several expressions of interest from legitimate institutional buyers, but they have been rejected by the FDIC Board. It is unclear why the FDIC has been rejecting interest from apparently legitimate buyers. Some market observers have speculated that it is due to the political ideology of the current FDIC Board, as it opposes mergers or acquisitions that lead to larger banks.
• Evidence of Political Corruption: When the FDIC initially announced the closure of SVB on March 10, it stated that uninsured depositors would not be covered in accordance with standard FDIC practice. However, just two days later on March 12, the FDIC did a complete reversal, stating that all uninsured depositors would be covered. The federal regulators justified taking this abrupt action by calling it a “systemic risk exception,” despite neither SVB nor Signature Bank having been designated as systemically important banks by the Federal Reserve.

This has led to scrutiny over the profile of the uninsured depositors at both banks and is revealing some noteworthy political connections. For example, the Intercept reported that Democratic California Gov. Gavin Newsom has been a client of SVB for many years and is associated with at least five bank accounts at SVB, including the accounts of three winery companies he owns. As for Signature Bank, it could not be more ironic that former Rep. Barney Frank (D-MA), coauthor of the largest banking reform bill in history, the Dodd-Frank Act of 2010, has been serving on the board of directors of Signature since 2015 and has earned compensation of over $2.4 million. Multiple media reports indicate that both SVB and Signature have been heavy donors to the Democrat Party and that uninsured depositors at both banks include other high-profile names that have been big donors to Democrats. Thus, evidence of possible political corruption behind the uninsured depositor bailouts of both banks needs to be thoroughly investigated (but don’t hold your breath).

Consequential Impact on Moral Hazard

The unprecedented bailout of $231 billion in uninsured deposits at two large regional banks, plus a new Federal Reserve emergency bank lending program with weak collateral requirements, will lead to yet more moral hazard in an American financial system already accustomed to being bailed out by the federal government. It also throws out the much-heralded objective of the 2010 Dodd-Frank Act to eliminate “Too Big To Fail” government bailouts in the U.S. financial system.

Contagion Outlook

It remains to be seen whether the failures of SVB and Signature will result in any significant financial contagion into other banks and financial institutions. However, the two failures clearly affected New Republic Bank, which subsequently suffered $70 billion in deposit withdrawals. This triggered the collaboration of 11 of the largest U.S. commercial banks to transfer $30 billion in deposits to New Republic to save it from the same bank-run failure that SVB and Signature experienced. An important banking sector metric of concern is the explosive growth in unrealized losses in 2022. At the end of 2022, the U.S. banking sector held $620 billion in unrealized losses. This may indicate that more turmoil lies ahead for the U.S. banking sector. Stay tuned.

This article originally appeared on the American Spectator.

This article was originally published on FEE.org. Read the original article.

Treasury Secretary Janet Yellen announced through a press release that they are lifting the $250,000 FDIC insurance limit. She proudly announced twice in her release that taxpayers wouldn’t be hit with the burden. This means they’re going to print more money.

Did FDIC insurance for depositors just become unlimited ??? pic.twitter.com/sS8Okhtkiw

— Wall Street Silver (@WallStreetSilv) March 12, 2023

According to the press release:

Washington, DC — The following statement was released by Secretary of the Treasury Janet L. Yellen, Federal Reserve Board Chair Jerome H. Powell, and FDIC Chairman Martin J. Gruenberg:

Today we are taking decisive actions to protect the U.S. economy by strengthening public confidence in our banking system. This step will ensure that the U.S. banking system continues to perform its vital roles of protecting deposits and providing access to credit to households and businesses in a manner that promotes strong and sustainable economic growth.

After receiving a recommendation from the boards of the FDIC and the Federal Reserve, and consulting with the President, Secretary Yellen approved actions enabling the FDIC to complete its resolution of Silicon Valley Bank, Santa Clara, California, in a manner that fully protects all depositors. Depositors will have access to all of their money starting Monday, March 13. No losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer.

We are also announcing a similar systemic risk exception for Signature Bank, New York, New York, which was closed today by its state chartering authority. All depositors of this institution will be made whole. As with the resolution of Silicon Valley Bank, no losses will be borne by the taxpayer.

Shareholders and certain unsecured debtholders will not be protected. Senior management has also been removed. Any losses to the Deposit Insurance Fund to support uninsured depositors will be recovered by a special assessment on banks, as required by law.

Finally, the Federal Reserve Board on Sunday announced it will make available additional funding to eligible depository institutions to help assure banks have the ability to meet the needs of all their depositors.

The U.S. banking system remains resilient and on a solid foundation, in large part due to reforms that were made after the financial crisis that ensured better safeguards for the banking industry. Those reforms combined with today’s actions demonstrate our commitment to take the necessary steps to ensure that depositors’ savings remain safe.

Bad fiscal policy hurts everyone. Some will be affected in the near future. Many of us will be impacted immediately. But the Democrats’ Big Tech cronies will have their suffering minimized at the expense of everyone else.

Editor’s Note: Now would be a good time to talk to Genesis about physical precious metals.

Following the earthshattering fall of Silicon Valley Bank on Tuesday, fear of more carnage prompted actions by other banks. Now, the FDIC has shuttered another bank on the other coast, making massive turbulence in the coming weeks a certainty.

Regulators have shut down New York’s Signature Bank for the same basic reasons they took down Silicon Valley Bank. According to Red State:

The move to shutter the second bank is seen in the financial world as a race to contain the fallout from SVB’s collapse. The Fed is trying to auction the bank’s assets off, accepting bids until Sunday night. There is concern in Washington D.C. that this is the beginning of a bigger financial crisis, one that could rival the Global Financial Crisis from the Bush and early Obama years. The worry from folks like my colleague Streiff is that this is a very big and very slippery slope toward nationalizing the financial markets.

The Fed, in its release, is trying to convince Americans that this is limited to just a depositor bailout and not a greater handout to shareholders and other debtholders, saying “Shareholders and certain unsecured debtholders will not be protected” and that “Senior management has also been removed.”

Treasury Secretary Janet Yellen initiated an emergency series of policies. The most noteworthy is to remove the $250,000 limit on FDIC depositor insurance. This will allow big money depositors at these two banks to not be harmed. To be able to do this without putting the burden on taxpayers means printing more money. This is why in Yellen’s press release she noted that they are working with the Fed to offer a bailout to depositors.

According to the press release:

Washington, DC — The following statement was released by Secretary of the Treasury Janet L. Yellen, Federal Reserve Board Chair Jerome H. Powell, and FDIC Chairman Martin J. Gruenberg:

Today we are taking decisive actions to protect the U.S. economy by strengthening public confidence in our banking system. This step will ensure that the U.S. banking system continues to perform its vital roles of protecting deposits and providing access to credit to households and businesses in a manner that promotes strong and sustainable economic growth.

After receiving a recommendation from the boards of the FDIC and the Federal Reserve, and consulting with the President, Secretary Yellen approved actions enabling the FDIC to complete its resolution of Silicon Valley Bank, Santa Clara, California, in a manner that fully protects all depositors. Depositors will have access to all of their money starting Monday, March 13. No losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer.

We are also announcing a similar systemic risk exception for Signature Bank, New York, New York, which was closed today by its state chartering authority. All depositors of this institution will be made whole. As with the resolution of Silicon Valley Bank, no losses will be borne by the taxpayer.

Shareholders and certain unsecured debtholders will not be protected. Senior management has also been removed. Any losses to the Deposit Insurance Fund to support uninsured depositors will be recovered by a special assessment on banks, as required by law.

Finally, the Federal Reserve Board on Sunday announced it will make available additional funding to eligible depository institutions to help assure banks have the ability to meet the needs of all their depositors.

The U.S. banking system remains resilient and on a solid foundation, in large part due to reforms that were made after the financial crisis that ensured better safeguards for the banking industry. Those reforms combined with today’s actions demonstrate our commitment to take the necessary steps to ensure that depositors’ savings remain safe.

It’s noteworthy that she referred to these measures as “reforms” rather than anything temporary. This isn’t a stopgap. It’s the new normal. This tells us beyond any shadow of a doubt that they realize the economy is in the process of tanking and they’re trying to hold it together until they get their Central Bank Digital Currency ready.

That’s part of the endgame. A manufactured and semi-controlled economic collapse will give the powers-that-be the predicate they need to force a Digital Dollar upon sooner rather than later. This is why I strongly urge Americans to start stocking up on essentials now. Tighten your financial belts. Cancel amenities and reduce frivolous spending if appropriate. Things are getting very rocky and if this really is by design as I suspect, it’s not going to get any better soon.

This is also why I am telling friends and family to move their retirement funds to self-directed precious metals IRAs. I am not a financial advisor but it makes a whole lot of sense to me to get wealth as far away from other markets as quickly as possible. Even though we have three gold sponsors, in this unique circumstance I’m recommending one in particular.