Half of America’s banks are already insolvent – this is how a credit crunch begins
The twin crashes in US commercial real estate and the US bond market have collided with $9 trillion uninsured deposits in the American banking system.
Almost half of America’s 4,800 banks have already burned through their capital buffers. They may not have to mark all losses to market under US accounting rules but that does not make them solvent. Somebody will take those losses.
“It’s spooky. Thousands of banks are underwater,” said Professor Amit Seru, a banking expert at Stanford University. “Let’s not pretend that this is just about Silicon Valley Bank and First Republic. A lot of the US banking system is potentially insolvent.”
The full shock of monetary tightening by the Fed has yet to hit. A great edifice of debt faces a refinancing cliff-edge over the next six quarters. Only then will we learn whether the US financial system can safely deflate the excess leverage induced by extreme monetary stimulus during the pandemic.
A Hoover Institution report by Prof Seru and a group of banking experts calculates that more than 2,315 US banks are currently sitting on assets worth less than their liabilities. The market value of their loan portfolios is $2 trillion lower than the stated book value.
“Rates have gone up 400 to 500 basis points in a year, and financing markets have almost completely shut down. We estimate there’s four to five trillion dollars of debt in the commercial (property) sectors, of which about a trillion is maturing in the next 12 to 18 months,” he said.
Packages of commercial property loans (CMBS) are typically on short maturities and have to be refinanced every two to three years. Borrowing exploded during the pandemic when the Fed flooded the system with liquidity. That debt comes due in late 2023 and 2024.
The Fed has no intention of backing off. It plans to raise rates further. It continues to shrink the US money supply at a record pace with $95bn of quantitative tightening each month.
The horrible truth is that the world’s superpower central bank has made such a mess of affairs that it has to pick between two poisons: either it capitulates on inflation; or it lets a banking crisis reach systemic proportions. It has chosen a banking crisis.
Zoals ik al eerder heb gezegd. Commercial real estate en een credit crunch zijn mijn grootste zorgen en de grootste aanleidingen tot deflationaire crisis momenteel.
FED en ECB gaan nog hiken deze week.
ECB misschien zelfs met 50bps.
Inflatie is nog lang niet verslagen.
De pijlen staan nog steeds downhill voor de voorlopige toekomst wat mij betreft
[Voor 113% gewijzigd door DutchManticore op 03-05-2023 12:35]
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