Gold Investing Madness Just Getting Started

4.3.24 - Gold Investing Madness Just Getting Started

Gold last traded at $2,300 an ounce. Silver at $27.20 an ounce.

US banking crisis of 2023 could easily happen again-Money Control

Could this year bring more bank failures as regulators fail to see all of the vulnerabilities modern banking brings? The reforms actually needed in the banking industry will take time and effort - two qualities in short supply in an election year.

Ever since the demise of Silicon Valley Bank in March 2023, regulators have been focused primarily on increasing loss-absorbing capital at the largest US financial institutions. Much less attention has been paid to the problem that precipitated last spring's banking crisis: banks' vulnerability to sudden depositor withdrawals.

The SVB debacle exposed three weaknesses. First, depositors pulled their money much faster than assumed by requirements such as the liquidity coverage ratio, intended to ensure that banks have enough cash and easy-to-sell assets to survive 30 days of withdrawals. Second, the Federal Reserve couldn't provide sufficient emergency discount-window loans, because banks hadn't pledged enough collateral to the Fed. Third, uninsured depositors had ample reason to run, because they couldn't be sure the government would make them whole: Such bailouts can happen only after a bank fails and regulators judge that the situation is bad enough to invoke the "systemic risk exception."

What to do? Certainly, regulators need to recognise that depositor runs will be much faster, and outflow rates much higher, in an era of social media and 24-hour banking. Yet requiring banks to hold a lot more high-quality assets in response would be counterproductive. Tougher liquidity requirements would force banks to divert funds away from lending.