Last week, former Dallas Fed President Kaplan talked about the current state of the banking system. He said, “We are now entering the third phase of the bank crisis, right on schedule.” Recent figures from the money market showed that the number of people taking money out of banks is at its highest level since the beginning of the bank crisis in March. The numbers were scary. In just one week, $47 billion was taken out of the money markets, taking the total amount to a record high of $5.4 trillion, which was a new high. To give you an idea of how big this is, it’s about a quarter of all the money in bank accounts in the United States. Also, this amount has gone up by almost a trillion dollars in the last year, with half of that increase happening in just the last two months.
Even though the big bailouts may have taken attention away from the financial problems for a while, they seem to have turned into a long-term and serious issue. Regional banks in particular are constantly losing money at a rate of $8 billion per day. At this rate, the number of banks other than the four biggest ones would drop by half in about two years.
Kaplan points out that banks are already having a hard time because of losses on their assets and the effects of the Federal Reserve’s careless rate hikes. But now they know that the long-term economic position will cause them more problems. Investors are afraid to buy bank stocks, so banks can’t get new money to fix their balance sheets. So, regional banks have no choice but to cut back on their loan portfolios. This means fewer new loans, not renewing current loans, and even taking back loans. Small and medium-sized businesses are hurt the most by these moves because regional banks are their lifelines. Large banks usually focus on dealing with big businesses, like giving out billion-dollar loans or looking for bailouts, instead of the thousands of small family companies that depend on regional banks.
Kaplan blames the Federal Reserve openly for draining regional banks and points out that the Fed’s plans for more rate hikes will make things worse for small banks and the small companies that depend on them. So, banks are desperately trying to cut down their operations quickly in order to stay ahead of any problems that might come up. Small businesses and families have to pay the price for this plan, which is a shame. Even though the news may not be saying much about it, a trillion-dollar movement is happening behind the scenes. This is causing regional banks to close and small companies to lose access to credit. The number of businesses going bankrupt is already going down steadily, and when the crisis is back in the news, we can expect a big jump in the number of fails. This could be the start of the fourth stage of the crisis, when Wall Street bankers may have to make hard choices like letting people go, which shows that they need to rethink their priorities.
In conclusion, the banking system is facing a lot of problems, and the results are slowly becoming clear. It’s important to keep a close eye on how things are going as they happen.
