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Title: Major Policy Reversal From the Treasury Will Lead to a Surge in Small Bank Runs & More Bank Failures
Introduction
In a surprising and controversial move, the Treasury Department has announced a major policy reversal that could have severe implications for the banking sector. The decision, aimed at reducing government intervention and promoting free-market principles, could potentially lead to a surge in small bank runs and greater risks for bank failures. This article explores the potential consequences of this policy reversal and highlights the implications for the stability of the financial system.
The Policy Reversal
The policy reversal by the Treasury Department involves a significant change in the government’s approach towards regulating and supporting smaller banks. Previously, the government had acted as a backstop, providing financial assistance and safeguards to prevent small bank runs or failures. However, under the new policy, the onus will be on individual banks and their customers to bear the consequences of any financial instability.
Small Bank Runs and Failures
One of the immediate repercussions of this policy reversal is the likelihood of a surge in small bank runs. Customers, now compelled to evaluate the financial health of their banks on their own, may grow wary and uncertain about the stability of their funds. In the event of economic uncertainty, fear-driven withdrawals could spark a domino effect, leading to a wave of bank runs in smaller financial institutions.
Furthermore, the increased vulnerability of smaller banks may result in a higher number of bank failures. In the absence of government support, struggling banks may find it difficult to navigate through difficult economic periods, potentially leading to insolvency. The failure of smaller banks can have devastating consequences for local economies, diminishing lending capacity and exacerbating the financial challenges faced by small businesses and individuals.
Impact on Financial Stability
The Treasury’s policy reversal will undoubtedly test the stability of the financial system. With a surge in small bank runs and a subsequent rise in bank failures, confidence in the banking sector as a whole may be shaken. This loss of confidence can have far-reaching economic consequences, leading to a decline in lending activity, reduced investment, and weakened economic growth. Moreover, the contagion effects from bank failures can spread to other financial institutions, amplifying systemic risks.
The Need for Prudent Decision-making
While the policy reversal aims to reduce government intervention, it is essential to ensure a prudent and measured approach to financial regulation. Striking the right balance between government support and market discipline is crucial to safeguarding financial stability. Implementing mechanisms to monitor and mitigate risks within the banking sector, such as strengthening capital requirements and enforcing robust stress tests, will be vital in ensuring the long-term viability of smaller banks.
Conclusion
The Treasury Department’s major policy reversal, aimed at reducing government intervention and promoting free-market principles, raises concerns about the stability of the banking sector. The potential surge in small bank runs and a higher number of bank failures may have significant economic consequences. Striking the right balance between market discipline and prudential regulation is essential to avoid destabilizing the financial system while safeguarding the interests of banks, customers, and the broader economy.
You assume you know what the government wants or intends. But contrary to what you suggest. What do you think of the notion, they are intentionally tearing it all down to justify forcing CBDC to save us
Why keep trying to "save" the banking system? Let it fall so prices will fall back to reasonable levels like after the 2008 financial crisis. After the financial crisis, homes were affordable again. I purchased a previously $400,000 home for $127,000 in California! Lots of young families purchased homes for $100K in my neighborhood. LET IT FALL!!!!!
Why do we "need" to backstop large deposits? Socializing the banking system will only lead to more reckless behavior. The free market is the only answer. Sure, there will be extreme pain in the short run, but that's the price that must be paid for so many years of irresponsible monetary and fiscal policy. There's no free lunch.
Thanks Steve
The problem is fed manipulation of interest rates. You can't pull out of interest rate manipulation by manipulating interest rates.
What you leave out in loss of confidence in banks is a reflection in loss of confidence in all Government institutions and decisions. Who can have trust in the banks when government pushes woke, involves us in a war in Ukraine and wants a war with both China and Iran. When the Government believe a man can be a woman etc. etc.
Does the Fed want to help small banks or do they want to consolidate monies into a few select larger banks that are set up for a CBDC transition? Interesting that the banks that have failed, financed digital currency businesses. The government might want to collapse other dc because they want their dc to be the only one. Not sure if incompetency is at play here or a well thought out plan to control dc which in turn will give them more control over the people with a social credit score system similar to China. Is it not possible that the Marxists in control now would purposefully destroy our banking system in order to maintain fascist control through social scoring tactics with dc?
Funny how we now blame the FED for raising interest rates as the cause of banking failures, while the actual cause is mismanaged banks. If anything the FED caused the problem by keeping interest rates so low for so long, to help their globalist buddies buy up foreign assets, factories in China and put Americans out of work. Now that is treacherous.
Any FDIC guarantee for banks must be for all banks so the public has equal incentive to mistrust all banks evenly. And there should be criminal penalties for negligent banking decisions. Like having only one banker out of four on the board as SVB did.
I think that isn’t what they want. They want CBDC which is made easier when people lose confidence in the banks.
I'm not worried we have dumb, dumber, dumbest plus stupid on our financial committee handling all our financial services for the country they're going to make me Rich. Because I've been stacking gold and silver so I think they're doing a great job.
This is a theory only,The Fed new the treasures with low interest rates were garbage when they rose up the rates.The big banks did not get caught up in this mess by design. That being the small banks are upside down and the depositors are running to the big banks for safety. The big banks are not coming to the rescue of the small banks for the reason being to eliminate competition, let them fail by instructions from the Feds play.The Fed does not want the responsibility of small banks,they want to stream line banking to monitor say five or more large banks.After the small bank collapse this clears the way for the Fed to implement there digital currency and can monitor the flow of digital currency from the large five banks.This is just a theory but why else would the Fed raise rates so fast after the covid period if it was not by design or built in failure.
Nope. Inflation will not be coming down and neither will interest rates. The Fed is looking at Ukraine. Interest rates began to climb in Feb of 22.
No Shortage of wealth out there!
What ever happened to interest on deposits at banks? Maybe there's a reason, not for loss of confidence, but for "what's the point". I realize it's much "smarter" to invest in a house, buy stocks, buy "bitcoin" etc., but what happened to just to good old "compound interest". we've made this thing complicated, and for those who enjoy that sort of thing, go for it, but maybe for those of us who really don't want to get involved in all that, or maybe just marginally, where do we go? I enjoy your show, Steven, if for nothing else, you show how complicated it is (also because I enjoy most of your advise). I'm not sure how much of a compliment that is, coming from a very fiscally conservative "dummy", but there it is.
Just wanted to say you put out amazing videos Steven. The way you break everything down is top notch. Thank you!
Liquidity for the bank bailout. Tightening for the middle class. Nice job
US DISTRICT COURT PUERTO RICO 23CV01138-SCC!!! MARANATHA IS REAL!!!
By your logic the all rates will and can only ever move to zero. If banks simply operated in responsible financial methods they wouldnt fail, no matter how small or large they are.
Lax lending standards are what is causing INFLATION, so YES lending standard need to be tighter. Mortgage lending is the main source of the "creation" of money which floods the system which raises prices, which is inflation. The CONTRACTION of money will cause deflation/stronger dollar which HELPS the middle/lower class who have most assets as cash, but it hurts those who have assets in anything else. This is exactly what we need right now.
You still sound like you don’t believe this is by their design!
A lot of SVB's deposits were the CCP party members
Why would anyone put money in a low interest bank when they can earn 4-5% that is insured?
The Fed should just buy back or exchange for T-Bills the US Treasuries that are HTM at purchase value, taking the haircut to prevent the banking crisis, which really isn't a hair cut since they received the money in the first place and it would have been an interest free loan to the Fed.
Why do you still feel that the FED is trying to do good? Clearly, the banking sector is following the plans of the Great Reset. People will swarm to CBDC's when they are broke and hungry and the only way to get government help is through signing up for CBDC. WAKE UP.
My advice to those who think others are making a mistake is the greatest fool The other party is following their plan, it is just that you are the fool who doesn't realize it.
Banks could solve a lot of this problem by actually paying enough to make it worth it to keep money in the bank…
Steve the Bond King, what do you think about Deutsche Bank CDS? They are in trouble.