More Bank Runs Coming!? Which Ones Are At Risk!?

The recent collapse of Silicon Valley Bank has kick-started a crisis of trust In the U.S banking sector Americans and Especially uninsured depositors are Scrambling to find out if their deposits Are at risk and according to a recent Survey almost 190 U.S banks five percent of all the Banks in the country are at risk of Going under That's why today I'm going to summarize This study reveal which risk factors to Be on the lookout for and tell you why Crypto could be one of the only truly Safe havens The study in question is titled quote Monetary tightening and U.S Bank Fragility in 2023 Mark to Market losses And uninsured depositor runs Catchy it was written by four academics From prestigious U.S universities and Was published on the 13th of March the Link to the full study will be in the Description Now the report begins with a brief Explanation of why so many U.S banks are At risk of going under this all has to Do with the assets Banks hold on their Balance sheets namely U.S bonds AKA U.S Government debt and mortgaged-backed Securities or mbs's which are bundles of Mortgages U.S bonds and mbs's are the safest Assets a bank can hold at least

According to Regulators this is why Banks tend to invest most of their Customer deposits your money my American Friends in U.S bonds and mbs's These assets earn interest for the banks And thus make it possible for them to Offer services with low or no fees when Interest rates start to rise however the Value of U.S bonds and mbs's goes down The reasons for this are beyond the Scope of this video but just know that Higher interest rates result in U.S Bonds and mbs's crashing If the value of these assets Falls too Much then Banks can become temporarily Insolvent this insolvency is temporary Because when U.S bonds and mbs's mature That is the loan terms end the bank Receives the full value of the Underlying asset the ins and outs of This are again beyond the scope of this Video but just know that U.S bonds and Mbs's don't lose money if they are held To maturity now this temporary Insolvency is why Banks don't report the Losses on U.S bonds and mbs's when Interest rates rise this is simply Because it's not a loss until they sell And in the case of U.S bonds and mbs's They won't lose anything if they hold Them to maturity Obviously this accounting practice is Controversial if you watched our video About the collapse of Silicon Valley

Bank or svb you'll know that these So-called unrealized losses are fine so Long as the bank isn't forced to sell Any of these assets at a loss to say on A customer withdrawals well that's Basically what happened to svb and it's Why it went under However there is one extremely important Detail to keep in mind 92.5 of svb's deposits were uninsured by The Federal Deposit Insurance Corporation or FDIC For context the FDIC only ensures Bank Deposits up to 250 000 US dollars per Account any amount above that is Considered uninsured svb experienced a Bank run because its uninsured Depositors could see that the bank had Lots of unrealized losses This led to speculation that svb didn't Have enough money to honor all Withdrawals as such this Bank Run Probably wouldn't have happened if most Deposits were insured I.E under 250k per Account The reason why svb had so many uninsured Deposits is because the bank provided Accounts and banking services primarily To small and medium-sized businesses Startups and entrepreneurs in Silicon Valley hence the name These kinds of clients require lots of Cash on hand to pay their employees make Acquisitions buy coffee etc etc

Now around 9 trillion dollars of Bank Deposits in the United States are Uninsured which is roughly 50 percent of All Bank deposits banks have been Happily investing these uninsured Deposits into U.S bonds and mbs's the Problem is that interest rates have been Rising and their unrealized losses have Been piling up At the end of 2022 U.S banks Collectively had unrealized losses Totaling more than 600 billion dollars Interest rates have risen more since Then which means these losses are likely Even larger now The worst part is that each successive Rate hike results in more losses than The previous hike don't ask me why In short U.S banks have lots of Unrealized losses and also lots of Uninsured depositors who are concerned That Banks can't honor withdrawals Because of these unrealized losses In the study the authors examined more Than four thousand Banks to see which Ones were most at risk and why for Starters they found that 42 of all Bank Deposits have been invested into regular Mbs's with another 24 percent being Invested into commercial mbs's I.E Commercial real estate loans U.S bonds And other asset-backed Securities or Abs's The authors then tried to calculate the

Unrealized losses on these assets after Crunching the numbers the authors found The following quote the median value of Banks unrealized losses is around nine Percent after marking to market the five Percent of banks with worst unrealized Losses experience asset declines of Around 20 percent note that marked to Market means assuming sold today in Plain English then the average American Bank has unrealized losses of around 10 Percent and five percent of the most Vulnerable banks have unrealized losses Of 20 so if depositors were to rush and Withdraw from these Banks they would get 90 percent of their money back at the Average bank and 80 back at a vulnerable Bank Not surprisingly these unrealized losses Were smallest for Global systemically Important Banks or gsibs which include The likes of JP Morgan and Bank of America Gsibs have less than five percent of Unrealized losses the average non-gsib Has 10 unrealized losses and svb wasn't Even the worst one The authors found that more than 11 of U.S banks have larger unrealized losses Than svb did when it went down they Estimate that as many as 500 other Banks Could have failed based purely on the Unrealized losses the reason why only Svb went down was because of all those

Uninsured deposits The authors then go on to provide a Series of scenarios to Showcase how Uninsured depositors could react to Rising interest rates the first scenario Assumes that they stay put the other Three scenarios assume they withdraw and Invest in other assets which provide a Higher interest rate than a savings Account You see insolvency fears related to Unrealized losses aren't the only reason Why uninsured depositors withdraw money From a bank in fact the primary reason Why they would do this is because they Want to earn a high interest rate on This massive cash pile this desire for Yield increases as interest rates rise Now unfortunately for the banks it's Hard for them to provide competitive Interest rates on savings accounts Without losing lots of money this is why So many U.S banks haven't increased Their interest rates on savings accounts Despite interest rates going up they're Making lots of money off their Depositors if they were to increase Interest rates on savings accounts However they wouldn't make nearly as Much money In their study the authors assume that Most uninsured depositors are sleepy Meaning that they aren't rushing to Withdraw to earn a higher interest rate

Elsewhere however this is starting to Change Besides the banking crisis the fact that Interest rates are high and still rising In other places is starting to tempt Those sleepy uninsured depositors into Waking up and moving their money Elsewhere if they do this though banks With large unrealized losses will start Going under as they won't be able to Honor all withdrawals naturally the Authors assess whether banks have enough Assets to honor these upcoming Withdrawals from uninsured depositors They assume that the FDIC doesn't close Down banks that come under stress which Is significant because the FDIC is Likely to do this if banks really start Getting squeezed the good news is that All but two American banks have enough Assets on hand to honor withdrawals from Uninsured depositors the bad news is That the authors don't specify which two Banks are at risk but they conclude that This minuscule risk means additional Bank runs are unlikely for the time Being for good measure the authors Analyzed this possibility They analyzed what would happen if all Uninsured depositors ran and what would Happen if half of all uninsured Depositors ran in the former scenario More than a third of U.S banks would go Under in the latter

186 U.S banks would go under what's Scary is that the 10 Banks most at risk Of experiencing a bank run are quite Large quote out of the 10 largest Insolvent banks one has assets above one Trillion dollars three have assets above 200 billion dollars three have assets Above 100 billion dollars and the Remaining three have assets greater than 50 billion dollars yikes what's Frustrating is that the authors don't Specify which banks these are if you Look at the number of banks with assets More than one trillion dollars it's just JP Morgan Bank of America Citigroup Wells Fargo Goldman Sachs and Morgan Stanley which one is at risk of a run Take a guess in the comments Speculation aside the authors revealed Just how sensitive U.S banks are to bank Runs if even just 10 percent of Uninsured depositors withdrew their Money from Banks 66 Banks would go under And if 30 of uninsured depositors Withdrew their money from Banks 106 Banks would go under This underscores the fact that there are At least a few dozen banks that are at Risk of going under over the coming Months this is ultimately due to the Deadly combination of large unrealized Losses due to Rising interest rates and Withdrawals from uninsured depositors Seeking higher yields from said rates

The authors seem to be fans of Doomsday Scenarios because they ran one more Bank Run simulation what if everyone withdrew All of their assets from U.S banks now They insist this simulation is worth Doing to assess the state of the U.S Banking sector surprisingly only about Half of U.S banks would go under The authors then conclude by Highlighting the fact that the value of Assets held by U.S banks is more than Two trillion dollars lower than what's Being reported thanks to the unrealized Losses-based accounting they reiterate That hundreds of banks are at risk of Going under if uninsured depositors Withdraw they warn that even a small Number of withdrawals from uninsured Depositors could lead to unrealized Losses being realized this would lead to More Bank runs which would evolve into An even bigger banking crisis than what We've seen so far they go as far as to Suggest regulations to address this for Starters Banks should start changing the Way they report their unrealized losses So that bank depositors have a better Sense of just how underwater their banks Are recall that the authors had to Manually calculate these unrealized Losses using complex maths because of The lack of transparency Now the authors acknowledge that this Won't solve the insolvency risks that

Many banks are currently facing which is Why they recommend that Banks be forced To increase their Capital requirements This coincidentally coincides with what Michael Barr the fed's vice chair for Supervision has been up to If you watched our recent video about Jerome Powell's testimony you'll know That Michael was secretly examining Capital requirements for banks before The banking Crisis began This could be because he saw the banking Crisis coming or because he was Preparing to take advantage of it to Introduce regulations if you watched our Recent video about Michael Barr's Anti-crypto speech you'll know that the Second possibility is the most likely Michael has been itching to increase his Powers presumably for the purpose of Consolidating the banking sector so that A central bank digital currency can be Rolled out say did you know that Michael Has spent his entire career switching Between the US government and the kinds Of prestigious universities that Published this very Bank Run study Probably nothing Okay so big question time which risk Factors should you be on the lookout for When analyzing Banks well I'll start by Saying that none of this is financial Advice and most of it is above my pay Grade

So in short the two risk factors to look Out for are unrealized losses and Uninsured deposits if your bank has lots Of unrealized losses and uninsured Deposits then it is at risk the problem Is that it's not easy to estimate these Unrealized losses moreover not all Uninsured deposits are prone to flight Remember that most of them are required To pay employees at small companies You'll also remember that most banks With lots of uninsured deposits tend to Be smaller I.E not gsibs In theory this makes them inherently Riskier than gsibs in practice though When a non-gsib goes under it gets Acquired by a gsib Means your assets could potentially be Safer at a small bank if you watched our Video about Bank balins you'll know that Gsibs can be risky if a non-gsib goes Under it gets acquired by a big bank and Customer deposits are kept but if a gsib Goes under customer deposits are used to Bail them out remember that there is one Gsib at risk of a run as per the study Gsibs are also more likely to comply With investment ideologies like ESG if You watched our first video about ESG You'll know that Bank of America is one Of the big institutions behind the ESG Movement and some of its Affiliates are In the process of introducing individual ESG scores for their customers

That said small Banks may not be that Safe either that's because around 80 Percent of commercial real estate loans Come from small banks in addition to Being wrecked by higher interest rates Commercial real estate is struggling Because people aren't coming back to the Office 50 of office spaces in the US are empty This means that small banks are at a Higher risk of sitting on larger Unrealized losses which is likewise Consistent with the findings of the Study if that wasn't bad enough these Losses are likely to increase as time Goes on even if interest rates start Coming down because work from home is Probably here to stay even if uninsured Depositors are less likely to withdraw From small Banks due to the purpose of These deposits even a small number of Withdrawals could therefore cause Serious issues for small Banks The findings of the study suggest this Risk is already there all it takes is 10 Percent of uninsured deposits to move In some then small Banks and big Banks Come with their own risks and it's up to You to decide which of those risks you'd Rather take Diversifying your deposits is an option But the fact that every Bank operates Using this fractional Reserve model Means your money will never be truly

Risk-free in their coffers and this is Where cryptocurrency comes in now Cryptocurrencies arguably have only one Risk and that is price volatility there Are of course risks associated with Things like improperly written code but The largest and most established Cryptocurrencies have been battle tested Every day for more than a decade Aside from that cryptocurrencies are one Of the best Hedges against the banking System when you hold a cryptocurrency There is no counterparty risk that Crypto is truly yours there isn't some Greedy Banker going and investing your Crypto into a basket of risky commercial Real estate loans behind your back this Characteristic alone makes Cryptocurrency valuable and it's not all That it offers Cryptocurrency lets you send a Transaction to whoever you want whenever You want and for however much you want This is the true definition of Financial Freedom and its importance was put on Full display when exchanges halted the Trading of Bank stocks during the recent Banking crisis in crypto nobody can turn Off the decentralized exchange and Prevent people from Trading you will Always be able to trade take a second to Consider that the blocking of Transactions the halting of trading and The freezing of assets will only become

More common as cbdc's are rolled out This will make the Financial Freedom Aspect of cryptocurrency ever more Important along with the Decentralization that underlies it make No mistake without decentralization Crypto's value proposition quickly Disappears that's why instead of wasting Your time assessing the unrealized Losses and uninsured deposits of banks You should learn about what makes a Cryptocurrency truly decentralized using The link in the description After all the days of commercial banks Are numbered the thousands of banks that Exist today will inevitably consolidate Into a handful of Mega Banks and then Governments will nationalize these Mega Banks When that happens Financial Freedom in The traditional Financial system will be Gone At the same time Financial Freedom in The crypto ecosystem will only continue To grow with some luck it will grow to The point that it's capable of Accommodating the billions of people who Will bail out of the traditional Financial system as it becomes ever more Centralized and ever more ideological Now both of these processes will take Years if not decades to play out but It's already clear that the Global Financial system is splitting into two

Systems one which is free and one which Is not Right now today you have the once in a Millennium opportunity to choose which System you want to be a part of I Suggest making that decision before it's Made for you and now I'm Keen to hear From you are you worried about these Bank runs how are you hedging your risk Let me know in the comments and while You're down there I have to let you know About our deals page over there you can Find some of the best discounts and Bonuses in the crypto space up to Thousands of dollars exclusively for the Viewers of this Channel all of that is Down below and that's it from me for Today I'll catch all of you further on Down the trail Foreign [Music]