Last week the Federal Deposit Insurance Corporation of the US released a report stating that there were 63 Problem Banks in the US and they are sitting on $517 Billion USD in Unrealized Losses. The FDIC supplies Deposit Insurance to US Banks so it’s in a position to know exactly how bad the financial situation currently is...
Of course they won’t tell anyone who the 63 banks are because they know what will happen if they do. Investors would immediately start withdrawing their money from those banks which would kick off Bank Runs of fairly epic proportions in this tightly connected and interdependent modern financial system. History has taught the bankers that Bank Runs are something to be avoided at ALL costs...so the rest of us have to remain in the dark about which banks are at risk.
What does that mean for people who have parked their savings at one of these 63 problem banks? It probably means they are completely unaware that their bank is in trouble. Therefore that also means they are at risk of losing some or all of those funds when the mountain of Unrealised Losses is...well...realised.
This is one of the reasons why I think the next Interest Rate move in the US MUST be down. These bank losses have been caused by the surge of Interest Rates over recent years that have driven down valuations on the fixed-income securities they have on their Balance Sheets. A cut here will give them some (short term) relief and buy time...but I digress from my point.
If you look through history at the times when Bank Runs were common, you’ll find a fairly common theme and it’s no coincidence that the FDIC was founded in 1933. People want Sound Money and Safe Deposits that they can trust and that they know will not be confiscated or lost when the financial system becomes unstable. That is why smart people own Precious Metals in times like these. History teaches us these lessons, but it’s up to us to decide whether we have learnt anything from them.
