Sep 9, 2023Liked by Peter Nayland Kust

"Curiously, small banks have still seen their deposit levels increase, thereby contributing to the imbalance between large and small institutions".

I'd like to know by what percent, they have increased and whether it correlates with the loss from the big banks or is slightly less?๐Ÿค”๐Ÿค”๐Ÿค”๐Ÿ˜‰

Frankly I'm hoping it's an indication that people are becoming more aware of the looming Financial crisis (still tracking right on schedule btw๐Ÿ˜‰), and the BIS, IMF and WEF plans, and are taking steps as individuals to support local institutions, keep cash alive and reject the larger banks, as per financial recommendations by Catherine A Fitts, and others.๐Ÿ˜‰

I'd like to think so but I'm not holding my breathe.๐Ÿ˜

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I'm leery of making the direct connection without more substantive data, but that may be exactly what's happening.

From the start of the year, small bank deposits have declined 1.9%, while large bank deposits have declined 4.3%.


However, small bank deposits bottomed out by March 29, and began rising afterwards. From March 29 forward, small bank deposits have risen 1.9%, while large bank deposits have declined 2%.


Is the outflow from one the inflow to another? That is one possibility.

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Sep 9, 2023Liked by Peter Nayland Kust

Understand๐Ÿ‘Or could it be the smaller banks, with the higher commercial portfolios are simply "swapping" debt, with loans from big banks? Sorry, im not a finance person.

'Scuse my ignorance, but can we speculate on something for a second? Purely hypothetically speaking๐Ÿ˜‰

Can a banking crash occur if smaller banks survive? Is it possible for smaller banks to "separate" so to speak?

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We're talking about bank deposits, so by definition loans are off the table. When we say "deposits" we're talking about your checking account, your savings account, your CDs, et cetera. Money of yours that you give to the bank to hold.

The CRE question is also a curiosity--and I don't pretend to understand the full dynamics in play. However, CRE defaults RATES are the highest among the 100 largest banks, and lowest among other banks. CRE loans themselves are predominantly made by the banks NOT in the list of the 25 largest banks.

Obviously, there is some overlap here: 75 of the 100 largest banks are, when assessing deposits and loan books, "small" banks. However, even with that we are still left with a conundrum and a correlation: the larger the bank the higher the CRE default rate. This implies that smaller banks are doing superior due diligence, monitoring the loans better, and maintaining better relationships with the loan recipient so as to be able to resolve issues before they reach the point of default. Larger banks are just not having as much success with the due diligence piece, and everything else falls apart because of that.

Which leads to another issue and potentially a significant bit of corruption by the Fed and certainly by the corporate media.

Silicon Valley Bank was seized by regulators on March 10. On March 8, the "small" banks had seen their deposits fall year to date by 0.5%. "Large" banks had seen their deposits fall by 3%. By March 15, the "small" banks had lost 2.9% of deposits year to date, while the "large" banks saw their deposits only down 2% year to date. In the wake of the SVB collapse the large banks increased their deposits by a full percentage point of their opening year figure, while "small" banks lost 1.4% of their deposits. Throughout that week the media was talking up how it was the "small" banks that were most at risk--at the time SVB was the 14th largest bank in the US. First Republic was either 15 or 16 on that list. Both were firmly within the 25 largest bank list.

Why, then, all the hullabaloo over how "small" and "regional" banks were at risk? Why use obviously deceptive language like that?

Can small banks survive even if large banks crash? Yes. As long as there is a source of liquidity to keep the bank operating, there is no reason for a widespread contagion effect

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Sep 10, 2023Liked by Peter Nayland Kust

Ahh. You've definitely clarified that for me. And as you pointed raised more questions!๐Ÿ˜‰ thank you for taking the time.

Yes the media's obsfucation re SVB and FN, made me think that it was more a case that someone wanted SVB devalued enough to enable a cheap purchase or a policy change re bailouts. BTJMO, I'm a suspicious sort these days๐Ÿ˜‰

Thank you for doing what you do๐Ÿ™

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SVB reads like a straight up case of incompetence--by both the regulators and bank management--along with some very complacent big-money depositors.


This is the thing that everyone failed to address--and which anyone with even basic understandings of finance and economics should have seen--is that the very moment that Treasury yields started going up (which, incidentally, started a good two months BEFORE the Fed raised the federal funds rate the first time in March 2022) all existing holdings of Treasuries were going to lose value. If current Treasuries are yielding 4% a portfolio of Treasuries yielding 3% has to lose value commensurate with the yield difference. Which means EVERY banker holding Treasuries KNEW at the start of 2022 that their securities portfolios were going to start declining in value.

For a bank, the easiest way to deal with this is to reclassify the securities as "hold to maturity". In that situation, you take whatever the coupon payments are until the security matures and then you take repayment of principal. There are no mark-to-market losses because the securities aren't actually "on" the market.

However, that means that bank capital is effectively tied up for the term of the securities. What SVB and First Republic and every other bank SHOULD have done is, starting in March, start unloading the value-losing Treasuries or moving them into "hold to maturity", but for all securities moved into the HTM category, the banks should have worked to replace that tied up capital. This could have been done via a stock offering (a preferred stock issue with a repurchase clause to be exercised once the securities matured and the tied-up capital was released would have done the trick) or a similar way to bolster both liquidity and Tier 1 Capital to allow the securities portfolios to be fully digested.

While HTM securities do not need to be marked to market, that becomes a double edged sword when you have deposit outflow, and you have to give the exiting depositors their money. This can force even the HTM securities back on to the market and all the losses the bank is trying to avoid recognizing then have to be recognized all at once. This was where SVB was at in early 2023. This was why they had to dump their securities portfolio at a huge loss, and raise capital all at once. When the losses were disclosed, depositors freaked, the run began, and everything else, as they say, is history.

First Republic is the one where the machinations are much more sketchy. When JPMorgan organized the $30 Billion of fresh deposits in First Republic by a slew of major banks, it was obvious (at least to me) at the time that First Republic was only playing for time. The core issues with the bank's financials remained and the $30 Billion was not nearly enough to reverse those problems.


In the end, in return for organizing that "rescue" of First Republic, JPMorgan got to cherry pick the best pieces from First Republic's carcass, leaving the Fed and the FDIC to deal with the money losing parts. So good was JPMorgan's deal that while the taxpayer cost of JPMorgan's takeover of First Republic assets was $13 Billion, JPMorgan showed a huge profit on the PURCHASE of those assets.


Mergers like that as a rule are not immediately accretive to earnings. Not in the same quarter as the deal is consummated. It was an insider deal all the way, and taxpayer dollars were used to benefit JPMorgan. When you read the news releases on the deal all the relevant facts are there to establish that's exactly what happened.

Wall Street has always known that when the Fed started raising the federal funds rate and otherwise jawboning rates upward, that their low-interest rate methods of doing business were going to end. Wall Street has repeatedly refused to adapt to a rising rate paradigm, basically choosing to ride the free-money train right up until the train ran off the rails.

Sadly, even that was pretty much telegraphed by Wall Street.


Wall Street got hooked on cheap money and refused to kick the habit until SVB collapsed, and we will find out in the next few weeks and months if Wall Street has really kicked that habit or if they've just been trying to hide it.

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Sep 9, 2023Liked by Peter Nayland Kust

The FERAL Reserve (which is neither federal, nor does it have any real reserves) is really playing with fire now!

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