Distressed Banks

Distressed banks are another red flag as aggressive monetary tightening in 2022 has ensured no soft-landing, another narrative soon to be assigned to the fairytale book. 

Distressed banks are the latest fallout of central banks tackling policy-made inflation.

Over 10 trillion dollars of asset prices were wiped out across the asset spectrum in 2022 as central banks pricked the asset bubble of everything with aggressive rate hikes, quantitative tightening, and permitting yields to rise. 

So the fallout is now spreading to the real economy.  

CAPEX is freezing (for the civil economy), and US corporate layoffs in January tallied nearly 60,000, a rate not seen since the Great Recession of 2008.

Distressed banks are now on the receiving end of an emerging doom loop

Distressed banks

As Darren Winters explains, bank revenues are dwindling as corporate investment deals become scarce, while losses associated with bad loans and delinquencies mushroom.  

Distressed banks could be a theme in 2023, with Subprime crisis 11 in play.

“Here is the red flag that subprime crisis II is underway,” written in a piece entitled, “Subprime Crisis II”.

Goldman Sachs reported that its 4Q 22 provisions for credit losses surged 183% to $972 million.

But Goldman Sachs ballooning losses in 2022 is the tip of the iceberg of distressed banks in 2023.

Indeed, Credit Suisse reported a 4Q 22 net loss of 1.4 billion Swiss. 

A report is surfacing of liquidity concerns culminating in liquidity outflows (a bank run), with 60% outflows coming in October 2022.   

Credit Suisse investors are losing faith in the management over cash flows. 

So investors fear that Credit Suisse, a bank with global reach operations in 50 countries employing 45,000 people, could be circling the drain. 

The management of Credit Suisse warned of further losses in 2023, which is credible, bearing in mind the bulk of the hikes came in Q2, 2022, where the fallout could likely be in 2023 due to policy time lag.

Another factor worth considering is that Credit Suisse froze more than 19 billion USD of accounts held by Russians in 2022, their crime being Russian citizens with Russian surnames.

So think about it, your government could implement a foreign policy that you, as a citizen, may not agree with. Nevertheless, your bank account could be frozen, by a so-called neutral Switzerland for being a passport holder of that country. 

Large-cap cryptocurrencies could be a liferaft in unprecedented geopolitical uncertainties where even neutral Switzerland highlights custodian risks in times of war. 

If you hold the asset on the blockchain in cold hard storage with you holding the private key, it’s yours. 

Encryption doesn’t discriminate because of your differences, whatever they may be. But overreaching governments led by tyrannical psychopathic demagogues are the greatest threat to peace and prosperity; Property and life have been taken by worshiping a particular faith, believing in a political ideology, or having an ethnicity.  

During WW2, neutral Switzerland provided a haven for looted Nazi gold as the Jews were hemmed onto livestock train cars to the Auschwitz death camp. It was Russia’s Red Army who first revealed to the world what phobias and hatred towards a group of people lead to, as they liberated persecuted people from Auschwitz.  

Today, 2023, no longer neutral Switzerland is freezing Russian bank accounts.      

But we digress; Distressed banks Bank bail-ins have already been implemented in Greece and to some extent in Switzerland. 

Today it is the Russians, and who is next? 

How would Credit Suisse’s losses mount if 19 billion USD were unlocked, with the named beneficiaries of the account, free to move their funds?

Here is the takeaway to this piece, distressed banks

A tighter monetary policy from here is akin to central banks shooting themselves in the foot.

Further, tightening will feed a doom loop as layoffs spiral into Great Depression levels, collapsing both consumption and investment in the economy and leading to more distressed banks as their revenue dries up and losses force more bail-ins of some form. 

In liberal Canada, bank accounts were frozen, due to their holders supporting trucker protests against mandatory experimental vaccinations.

Put simply, if central banks continue to tighten, then distressed banks could bail in your account. 

Darren Winters notes, this has already happened in Greece, Canada, and to some extent, even Switzerland is no longer safe. This method could take many forms, where the savings bank balance is converted to worthless shares or bonds.

So with distressed banks growing and corporate layoffs surfacing every twenty-four hours, the market has figured out that the Fed can not keep the fictional narrative that the economy is strong, irrespective of what inflation is doing. This is not the 80s decade when the Fed fund rates went to 20%, and the government had a surplus. 

The US public deficit is over 32 trillion USD, and interest on the debt is approximately 500B USD, the fourth largest budget item. The debt situation is even worse in the Eurozone, which does not have the reserve currency privilege to fall back on. Low-interest rates have become a pillar of the US and western aligned economies. 

The financial system goes into meltdown dragging the economy into a great depression if that support is withheld.

Frankly, if central banks keep hiking, we will see a historic collapse of everything, real-estate crash, mass bank bail-ins, and failed economies, failed states, which would make the financial crisis of 2008 and the Great Recession look benign by comparison.

The first sign of distressed banks was in November 2022 when I wrote in a piece entitled, “Collapsing Market Liquidity.”

Collapsing market liquidity is flashing red everywhere

The Federal Reserve’s Repo hit a record 351BN, its biggest weekly jump in history, in the first week of November.

So more rate hikes could mean a wave of distressed banks, bank runs, bank bail-ins, and a financially engineered depression. 

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