The aftermath of several high-profile bank collapses is still affecting the U.S. banking system, as evidenced by the recent closure of Silvergate Bank, Silicon Valley Bank (SVB), and Signature Bank (SBNY) during the first week of March.
Government control was imposed on both SVB and SBNY, and the U.S. Federal Reserve, Treasury, and Federal Deposit Insurance Corporation (FDIC) bailed out SBNY and SVB’s uninsured depositors, ensuring that all depositors were compensated.
Since then, the banking contagion has spread to various financial institutions like SVB UK and Credit Suisse. A recent report by Bloomberg states that after the collapses, the last two weeks of March have faced the biggest contraction in lending on record. As per the data provided by the Federal Reserve, which goes as far back as 1973, almost $105 billion was erased in the last two weeks of March 2023.
According to Bloomberg’s Alexandre Tanzi, the loans included industrial, commercial, and real estate. Additionally, financial institutions experienced a decline in deposits for 10 consecutive weeks, with $64.7 billion in commercial bank deposits taken out last week.
March also saw a significant increase in the issuance of Federal Home Loan Bank (FHLB) bonds, which is another indication of trouble. Journalist and macro researcher for Blockworks, Jack Farley, shared a chart that revealed FHLB bond issuance had surged last month, reaching nearly a quarter trillion dollars.
Wow, bond issuance from the Federal Home Loan Bank (FHLB) absolutely exploded surged last month to just under a quarter trillion dollars.
This is over six times the post-GFC average for the month of March and it indicates banks' scramble for cash.
Quick thread 🧵
(1/6) pic.twitter.com/8RQxAxmeHg— Jack Farley (@JackFarley96) April 7, 2023
In addition, the Twitter account Wall Street Silver (WSS) posted a video featuring economist Peter St. Onge who explained that a considerable number of bank deposits are being transferred to money market accounts.
Trillions of $$$ are draining out of the banks … into money market funds. That weakens the banks.
Fear that the banks are at risk is driving this trend and thus making the banks even weaker.
Elon Musk responded to the video statement made by the economist and the tweet posted by WSS on Twitter, saying:
This trend will accelerate.
Musk has previously criticized the U.S. banking system multiple times, including the Federal Reserve. In November 2022, he warned of an upcoming recession and advised the Fed to lower the federal funds rate. In December 2022, Musk stated that increasing the interest rate by the central bank would worsen the recession. The SpaceX, Tesla, and Twitter boss also said that the Fed’s rapid increase in interest rates would be remembered as one of the “most damaging ever.”
Following the failure of three major U.S. banks in March, Musk again criticized the Fed’s slow data processing and demanded an immediate decrease in interest rates.
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