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Ambrose Evans-Pritchard: Half of U.S. banks may be insolvent and this is how a credit crunch begins
By Ambrose Evans-Pritchard
The Telegraph, London
Tuesday, May 2, 2023
The twin crashes in U.S. commercial real estate and the U.S. bond market have collided with $9 trillion uninsured deposits in the American banking system. In the cyber age such deposits can vanish in an afternoon.
The second and third biggest bank failures in U.S. history have followed in quick succession. The U.S. Treasury and Federal Reserve would like us to believe that they are "idiosyncratic." That is a dangerous evasion.
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Almost half of America's 4,800 banks are already burning through their capital buffers. They may not have to mark all losses to market under U.S. accounting rules but that does not make them solvent. Somebody will take those losses.
"It's spooky. Thousands of banks are under water," said Professor Amit Seru, a banking expert at Stanford University. "Let's not pretend that this is just about Silicon Valley Bank and First Republic. A lot of the U.S. banking system is potentially insolvent."
The full shock of monetary tightening by the Fed has yet to hit. A great edifice of debt faces a refinancing cliff-edge over the next six quarters. Only then will we learn whether the U.S. financial system can safely deflate the excess leverage induced by extreme monetary stimulus during the pandemic. ...
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