Despite endless promises from Washington DC that there would never be another bank bailout, the Biden Administration bailed out Silicon Valley Bank (SVB) by removing the $250,000 limit on deposit insurance. Treasury Secretary Janet Yellen then added that only banks that pose a SYSTEMIC RISK to the economy will be bailed out in the future. Translation: Only the big four Too Big To Fail (TBTF) banks will be bailed out. Which means the Biden Administration prefers big banks over community banks. The “Middle Class Joe” loves BIG Pharma, BIG Advocacy, BIG Tech, BIG Media and now BIG Banks. He should rename himself “Big Joe” Biden for the 2024 presidential election.
Of course, we are aware of the radical change of the Fed in terms of reducing its balance sheet (green line). While Bankrate’s 30-year mortgage rate has now declined below 7% to 6.97%, it has only fallen -15 basis points from the recent peak of 7.12% on 2/3/2023, when the yield of the 10-year Treasury was 4.056%. So the 10-year Treasury yield has fallen -62.7 basis points since 2/3/2023, while the 30-year mortgage rate fell only -15 basis points.
On the European banking front, Credit Suisse is kaput and both Swiss Bank and Deutsche Bank are considering buying Credit Suisse’s assets. In other words, MORE bank consolidation.
Here’s a chart of US bank consideration as of 2009 with 37 banks in 1990 shrinking to 4 mega, TBTF banks in 2009 remaining today. But will the 4 superbanks absorb the now unprotected community and local banks? Time will tell, but if history repeats itself, the answer is yes.
The KBW bank index continued to fall despite the bailouts of SVB and Signature Banks. But at least the total returns on Treasuries and MBS held by banks increased with the return of QE!
Yellen and Biden are competing for the Knucklehead Of The Century award. While not nearly as sloppy as the sudden withdrawal from Afghanistan, bailing out Silicon Valley’s elites will not end well.
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