Banking System Problems Aren’t Over Yet

Many people were understandably shocked a couple weeks ago when the US experienced the 2nd- and 3rd-largest bank failures in its history. But with the Federal Reserve stepping in to help lend money to beleaguered banks, markets seem to have assumed that the worst is over.

Many individual investors have taken the opportunity to try to protect their savings, many by moving their funds into larger banks, into money market funds or Treasury bonds, or by buying safe haven assets like gold and silver. But some who haven’t had made moves may be growing complacent now.

They may think that the banking system is in solid shape, and that government action to shore up banks is working. But as events right now demonstrate, the banking system isn’t out of the woods yet.

Continued Weakness at First Republic

Last week, we wrote about the possible actions the Federal Reserve could take in the aftermath of the recent troubles in the banking system. One of those potential actions was to expand the Bank Term Funding Program (BTFP) in order to provide broader support to troubled banks.

After all, the BTFP was initially funded with only $25 billion, which was only a fraction of the amount of uninsured deposits held at failed banks Silicon Valley Bank and Signature Bank. Now the next domino to fall looks like it may be First Republic Bank.

Federal regulators are now apparently eyeing an expansion of the BTFP in order to benefit First Republic and other struggling banks. It gives us no pleasure to be correct in our prediction that the Fed would expand the BTFP, but given knowledge of the Fed’s lending activities in 2008, such an action was all but inevitable.

First Republic is an even bigger bank than Silicon Valley Bank, having until recently had about $176 billion in deposits. Its failure could thus end up supplanting SVB as the 2nd-largest bank failure in US history, and would be a very worrying sign for the future of the banking system.

First Republic has already received $30 billion in deposits from larger banks hoping to stabilize the bank, after having received about $70 billion in assistance prior to that. But with depositors having withdrawn about $70 billion in deposits, the bank’s financial situation remains precarious.

Regulators are obviously hoping that First Republic doesn’t fail, as a third failed bank would undoubtedly spook markets. Whether the bank can survive in its current state is questionable, and whether the bank can sell itself or get sold in a forced sale by federal regulators is also in doubt.

From the Fed’s discussions and from the continuing weakness evident with First Republic, it’s clear that the banking system has a ways to go until it reaches stability. Yet markets seem to have brushed off the difficulties the banking system is facing, and seem to think that everything is going to be okay.

Other Banks in Trouble Too?

Looking at the Fed’s balance sheet, we see that the total amount of lending through the BTFP jumped from $11.9 billion on March 15th to $53.7 billion on March 22nd. And the “Other credit extensions” line item increased from $142.8 billion to $179.8 billion. Overall loans from the Fed were up from $318.1 billion to $354.2 billion over that time period, as the decrease in discount window lending was counteracted by these massive loan increases through the BTFP and other programs.

That’s hardly the picture of a banking system that’s stable, or that’s on the road to stability. Continual increases in lending not only indicate a banking system that’s facing difficulty, it indicates that the problems are getting worse.

This current crisis has the feeling of 2008, when the Fed’s emergency lending facilities provided backstops for much of Wall Street. But in a way, because this banking crisis is so broad and hitting so many regional banks, it is beginning to take on the feeling of a systemic crisis, with the Fed trying to forestall something worse from occurring.

Just imagine what would happen if the banking system were really in trouble, with banks all across the country facing depositors withdrawing their money. How would you function if the Fed decided to impose a mandatory bank holiday to keep deposits at banks? How would you go about your daily life if you couldn’t write checks, pay off bills and credit cards, or transfer money between accounts?

That’s a frightening scenario that none of us have ever faced, nor has anything that severe occurred in nearly a century. But the danger is lurking under the surface, and if the Fed isn’t successful in stabilizing the banking system and restoring public confidence in the banking system, it could be a danger that surfaces when we can least afford it.

Protect Against the Worst

The prospect of a bank’s failure is prompting many Americans to place their bank deposits into assets they deem to be safer. For some that means putting their wealth into money market accounts, which some analysts believe could be the next bubble. Others are placing their money into Treasury bonds, which could see some issues surrounding the debt ceiling crisis.

Cryptocurrencies have seen some safe haven buying, although recent federal government actions against prominent cryptocurrency exchanges have some worried about a government crackdown on crypto. And traditional safe havens like gold and silver have seen significant safe haven buying, pushing their prices to the highest levels in years.

There’s a reason gold and silver have been so trusted over the centuries. When other assets lose value or fade away, gold and silver remain. In the event of a banking system collapse, which would you prefer to have:

1. Money in a money market account;
2. Holdings of Treasury bonds;
3. Bitcoin and cryptocurrencies; or
4. Gold and silver coins?

When fear and uncertainty are the order of the day, people look for tangible, physical stores of wealth. That’s what gold and silver offer. Your bank may collapse, your brokerage may fail, the US government may default on its debt, and the internet may go down, but that roll of gold coins at the back of your sock drawer is just as valuable and useful as it ever was.

If you want to explore the options available to you when it comes to protecting your wealth with gold and silver, call the experts at Goldco today. With over $1 billion in precious metals placements and thousands of satisfied customers, Goldco has helped people just like you benefit from gold and silver.

Don’t wait until it’s too late. Call Goldco today.