U.S. Regional Banks on the Chopping Block
The demise of regional banks in the United States is being accelerated by the sharks of Wall Street, who are shorting their stocks on the future market. As the Wall Street on Parade website reports, Silvergate and First Republic were on that list as of late March 2023, with First Republic holding the top place. Number 2 on the list is PacWest. Number 6 and 7 are Comerica Inc. and Western Alliance Bancorporation. A full list is here. The market value of those banks is now crumbling.
Which of the Too Big To Fail Banks will be mobilized to bail out the next failed regional bank, disguised as takeover (“a market solution”)? How long can the Fed keep raising interest rates and the FDIC issue guarantees with taxpayers’ money?
The biggest banks are now so big, thanks to the Fed, that when one of the Big Six or the broader international group of “primary dealer banks” of the Fed does fail, the explosion will be such as to blow up the $300 trillion bubble of debt, and ravage the trans-Atlantic economies.
Even more important, regional banks have been the engine of credit to the real economy, while megabanks have used deposit money for speculation. 85% of the “paycheck protection program” (PPP, the business loan program established under the Trump administration) loans to businesses in 2020-21 were made by community banks, which had less than one-third of the system’s deposits. In other words, less than 10% of those loans were made by Wall Street banks which had two-thirds of the deposits.
So, a worsening of the credit crunch is on the horizon, while the actual economy is lagging. Core factory orders declined 0.7% in March, as they also had in February. The Purchasing Managers’ Manufacturing Index in mid-April was in contraction at 47.1. The Federal Reserve’s job openings survey declined for the third month.