The Real Reason Why the Current Banking Crisis is Going to Lead to a Market Crash

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6 comments

  1. (2) 2
    Rogelio Villarreal Abreu says:

    What scenario do you guys see in BTC if this thesis goes through? Will it also crash along with SP500?

  2. (0) 0
    Hutch0321 says:

    What do you make of housing starts being up triggering more loan origination? It appears to support the inflation thesis but it does counter the deep Recession idea.

  3. (0) 0
    Mark HORNE says:

    really appreciate your guidance !

  4. (3) 3
    Keith Bernstein says:

    Hi Peter- With deep respect. I think your analysis is flawed. I am an experienced bank lender. Bank advances are typically at floating rates with a Credit Spread. (If Bank’s lend at a fixed rate they hedge that advance though a match-fund desk. Banks too smart to lend fixed on a floating deposit base.)

    Banks can legally only do 1 of 3 things with deposits: Return money to depositors, Lend out the money, or buy Treasuries.

    SVB’s problem was severe Treasury Mismanagement. 90% of depositors were Tech and start-up companies – by definition – not cash flow positive. As IPO’s and Capital Raises dried up in Fy22, their deposit base continued to withdraw deposits to cover payroll and operating costs. Deposits ran lower, Treasury Ops did not slow purchases of Treasuries until too late, and when SVB had to liquidate long treasuries to cover deposit withdrawals for payroll etc, SVB realized massive losses – (b/c of material rate increases – capital impaired) necessitating a Bank Capital Raise. SVB cap raise stumbled, became public, and run on the Bank ensued. (There is no problem in SVB’s loan book. It’s in their Treasury Investment Program – hence the Fed’s signal to lend on Treasuries at par.)

    Credit Suisse – a completely different situation. Undercapitalized with a questionable culture.

    Generally banking system is stable.

    Could easily be a CRE crisis brewing beneath the surface – especially in the smaller community Banks, but SVB and Credit Suisse appear to be one-offs at this time.

    1. (0) 0
      Maxrothira says:

      What about the main part of the thesis, that banks will be charging a higher interest rate, whether floating or not? Is that not the take away? Tightening bank standards and rates = less/more expensive lending = economic decline?

      1. (0) 0
        Keith Bernstein says:

        Agree.
        Lending is tightening – economy slowing, real estate correcting. Fewer exceptions granted by credit approving execs. Regs will tighten lending standards.

        For now loan pricing is still very competitive, but that’s shifting. Borrowers are less price sensitive as they seek to develop relationships with stronger well run institutions. Also, threats of socializing the cost of failure (surviving Banks to repay depositors in failed Banks) has to increase loan pricing.