Expect More Bank Failures as BTFP Expires
By Hermes Lux
The banking sector will soon experience another wave of failures and consolidation as the Bank Term Funding Program (BTFP), a lifeline for struggling banks, is set to expire in March 2024.
The BTFP is a Fed program that provides loans of up to one year to eligible depository institutions (mostly small banks) pledging collateral eligible for purchase by the Federal Reserve Banks. The program was created in March 2023, after the failures of Silicon Valley Bank and Signature Bank, to lend to other banks that had big unrealized losses on their holdings of government bonds and were, therefore, at risk of large-scale withdrawals of deposits. The Fed has no plans to renew the BTFP for a very specific reason.
The BTFP has helped many banks survive the past year with surging interest rates, which caused a significant decrease in the market value of the U.S. Treasury and government-backed mortgage securities held by banks. However, the program is scheduled to end in March, leaving many banks vulnerable to liquidity and solvency problems. Some of these smaller banks are likely to fail in Spring 2024.
According to a recent report by the Federal Deposit Insurance Corporation (FDIC), the failures of Silicon Valley Bank and First Republic Bank last year cost the agency $18.7 billion. The FDIC imposed a special assessment on 114 financial institutions totaling $16.3 billion to recover lost funds, but they know the money will never be recovered. That’s the whole point. JPMorgan Chase $JPM, Bank of America $BAC, Wells Fargo $WFC, and Citigroup $C paid the largest assessments, which dragged on fourth-quarter earnings, as expected and as according to plan.
These are the 4 largest banks in the US with more than $12 Trillion in assets combined. These four banks are too big to fail. Behind the scenes it is also these four banks that make up the majority of the direct influence of the cartel that is the Federal Reserve System, which, despite its name, is not Federal nor is it a government system.
Recently, the FDIC warned that more bank failures are expected in March and April 2024, as many smaller banks are unable to repay their BTFP loans or cope with the rising debt burden. The agency said that it is working closely with the Federal Reserve (the Cartel) and other regulators (US Treasury) to monitor the situation and ensure the stability of the banking system. In other words, it’s for the greater good, and in the end, the bank consolidation will justify the decision by the FDIC, Treasury and the Fed.
Ultimately , the Fed is trying to consolidate small banks into larger ones, as part of its strategy to reduce the systemic risk and complexity of the financial sector. The central bank (cartel) is said to be offering incentives and regulatory relief to encourage mergers and acquisitions among lesser banks, especially those with assets below $10 billion.
The banking industry Is facing a critical moment, as the expiration of the BTFP will likely trigger another round of failures and consolidation. The outcome of this process will have significant implications for the economy, the financial system, and the depositors.
What does this mean for the markets? In one word, volatility. A crash of some kind, certainly.
The Fed will likely be forced to lower interest rates and/or flood the markets with more liquidity causing a rise in inflation.
Be warned and be ready. $VIX.
Submitted January 26, 2024 at 11:36PM by m756615 https://ift.tt/6xBUM2E
