It appears that another bank crisis is on the horizon as banks are in trouble…again.
Banks In Trouble…Again
November 5 (King World News) – Gerald Celente: In the wee hours of 31 October, the U.S. Federal Reserve quietly passed $29.4 billion in fresh cash to the U.S. banking system through an expansion of overnight repurchase agreements (repos).
The repo program lets banks trade their U.S. Treasury securities to the Fed in exchange for cash. Banks then have more cash, allowing them to make more loans and potentially lower their interest rates to attract borrowers.
It was the Fed’s largest liquidity boost to the banking system since early 2020 during the onset of the COVID War when the central bank leaped in to flood banks with cash to keep the economy from seizing up.
U.S. banks’ cash reserves have dwindled to about $2.8 trillion, their least in four years, the Economic Times reported. The supply shrank by $102 billion in the past eight weeks, according to Fed data, the sharpest decline since 2021.
The repo rescue is intended to shore up the short-term lending market, which has been strained by the Fed’s steady contraction of its bond holdings. As bonds in the central bank’s portfolio mature, the Fed has not replaced them. That has taken a major bond buyer out of the market.
Since beginning its program of “quantitative tightening” in June 2022, the value of its bond holdings have fallen from about $9 trillion to $6.58 billion at the end of September.
At its October meeting, the Fed’s Open Market Committee voted to resume buying bonds, probably in the first quarter of the new year, to ensure there is enough cash in the bond market to absorb the increasing number of issues by the U.S. treasury. (See “Fed Cuts Rate, Will Re-Enter Bond Market” in this issue.)
The impact of the Fed’s move was immediate. On 31 October, the interest rate on the 13-week treasury note slipped from 3.76 percent to 3.72 percent
The central bank’s move is a “flashing red warning light,” the ET said, highlighting a liquidity crunch that will hit smaller banks hardest first.
The Fed has maintained a tough stance recently, resisting pressure to slash its interest rates and instead holding them steady as a counterweight to inflation. Now the repo infusion may be signaling “a more nuanced approach,” the ET noted, one that still keeps inflation in check but that also maintains financial liquidity and stability.
TREND FORECAST:
As we have documented over the past two years, U.S. banks are grappling with an array of troubles.
They are having to pay higher interest rates on savings to keep depositors from transferring their accounts to money market funds. Regulators have raised the amount of cash banks need to keep in reserve to cover the increasing number of loans that go bad.
Inflation and uncomfortably high interest rates have squelched demand for loans.
In addition, small and medium-sized banks have broad exposure to commercial real estate loans, a sector that is facing a potential wave of defaults as loans come due on properties that have lost so much value that they now are worth less than their loan balances.
The Fed’s renewed willingness to intervene will soften some of the blows to the industry but will not be enough to prevent an increased number of bank failures. Fortunate institutions will be taken over by larger banks with deep pockets—especially under a merger-friendly Trump administration—but a few will fail outright.
Again, this is all old news for Trends Journal subscribers. We have detailed the danger banks face from these loans since the COVID War and in our Top Trend 2023, Banks Go Bust, and in Office Building Bust, a Top Trend 2023.
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