Charles Gasparino
Business
March 20, 2023 | 5:19 p.m
If you listen to Janet Yellen, you might believe that the US banking system is, in her words, “sound” and that your deposits “remain safe”.
She’s the finance minister, after all. She must have a clue, right?
nope Top financial CEOs tell me it’s mostly MIA as our banking system is showing serious signs of cratering. In her two years as the government’s chief banker, Yellen has failed to grasp the full extent of the problem because she has instead focused too much on other things like Ukraine, abortion and all the progressive causes she champions.
The problem is pretty obvious if you can read a balance sheet. Top financial executives have privately identified up to 25 regional and mid-sized banks with assets in the neighborhood of $15 billion to $200 billion that are doomed to fail. The ill-fated Silicon Valley, signature banks, and today’s newest concern, First Republic, are the oozing sores that signal even greater levels of bank rot.
On the one hand, 25 mid-tier bank debacles sound better than the massive financial collapse of 2008 that began with the collapse of Lehman Brothers and spread to our largest banks and Wall Street firms.
That also sounds better than the scary number circulating recently that almost 200 banks are in danger of imploding. But not so much when you start adding up the assets and deposits that could be lost to the so-called “dirty two dozen.”
Treasury Secretary Janet Yellen has been too focused on other things like Ukraine, abortion and all the progressive causes she has championed, writes Charles Gasparino..Getty Images
Look up any list of the largest banks by assets, minus the top 5 or so, and we’re talking trillions in assets that could be wiped out even if the big banks stay solid.
If the first 25 go south, the rest of the system faces a major collapse, making the horror number an immediate possibility. It also increases the chances of a deep recession.
Follow the Post’s coverage of the Silicon Valley bank collapse
Again, you won’t hear any of that from Yellen or Sleepy Joe Biden — they’re too busy trying to mimic Kevin Bacon’s clueless security guard character on National Lampoon’s Animal House and yelling, “Keep calm, everything’s fine!” ” before being trampled on by a hysterical mob.
The bankers I speak to don’t sugarcoat anything and panic. They’re looking at balance sheets, and across much of regional banking, they’re looking at the risky loans, the asset-liability mismatches that have doomed SBV, Signature, and possibly First Republic.
Joe Biden said the US banking system is healthy. AP Photo/Evan Vucci
They compare it to the austerity crisis of the late 1980s-early 1990s, perhaps not in magnitude (more than 1,000 so-called savings and loans went bust), but certainly in magnitude given the greater concentration of banking assets in fewer institutions today.
Remember that with the austerity crisis came a recession. The irrational exuberance that caused so many ordinary people to lose money in meme stocks and crypto has now reached the once-reputable regional and municipal banking system. It was spurred by interest rate hikes to calm inflation, which was hitting the middle class and their ability to afford groceries and gas.
The ill-fated Silicon Valley, signature banks, and today’s newest concern, First Republic, are the oozing sores signaling even greater levels of bankruptcy.AP
Even if the Fed pauses rate hikes this week, the ones already in place are depressing assets and banks’ balance sheets, leaving the most vulnerable – 25 of them, according to people I speak to – with a good chance of collapse.
Top CEOs are working to stop this. The market rallied Monday after the Credit Suisse merger bailout, but shares in First Republic continued to fall sharply. As I first reported on these pages and for Fox Business, First Republic is buying itself in with JPM as its banker before it too collapses.
Jamie Dimon, the CEO of JPMorgan, is personally working on the phones to close the deal and slow down the contagion. He believes the banking turmoil is the signal that his famous prediction of the economic “storm” is unfortunately upon us now.
But the history of financial contagion shows that such one-off actions never work. Dimons Bank and others pumped $30 billion in deposits into First Republic last week to stabilize it, and its shares continued to fall. Before the ill-fated Lehman moment in 2008, there were capital injections from bond insurers; The forced merger of Bear Stearns with Dimon’s JPM; the mortgage giants Fannie Mae and Freddie Mac being put into government custody and I’m sure I’ve missed a few.
What we need is leadership from Washington and the recognition that we have a problem that needs a broader solution. Unfortunately, these are things Yellen and Sleepy Joe can’t seem to understand.
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