Last updated on May 3, 2023
The banking system is displaying signs of trouble according to recent data from the Fed, which shows a withdrawal of $98 billion from banks in the past week. This has resulted in an increase in deposits at larger banks as customers pull their money out of local banks due to concerns over their stability. In fact, over $120 billion has been withdrawn from local banks, while larger banks have seen an increase of $68 billion in deposits. The fact that gold prices have risen over the past month is not surprising given the situation.
The consequences of this situation could be severe if the FED and Treasury do not act quickly. Fear and perception are the primary drivers of bank runs, and small banks are currently seen as less safe due to the rapid rise in rates, specifically the Fed Funds rate. They are also struggling with the US Treasuries they bought over the past few years, which are losing value and could lead to capital reserve losses if sold.
This situation is important because small businesses and customers often rely on local banks for loans and financial support. The community-oriented nature of small banks means they understand the unique needs of local businesses, such as gas stations and small shops. However, it is becoming increasingly difficult for these businesses to secure loans, which could prevent expansion or even meeting payroll. If the FED, Treasury Department, the President, and Congress do not provide a strong vote of confidence and take action soon, the situation could spiral out of control. We need leaders to assure us that everything will be okay; otherwise, this contagion will only get worse. Unfortunately, there may be more to come. See you Monday!
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