Banking Sector Instability
The banking crises of 2023, which included three of the largest bank failures in U.S. history, may seem to have subsided. But the sector’s challenges are far from over. Behind the scenes, banks continue to face solvency issues. And the safety of deposits remains in question. Coupled with calls for deregulation, the risks to the banking system—and to your savings—are mounting.
Created during the Great Depression nearly 100 years ago, the FDIC guarantees deposits of up to $250,000. It offers protection to consumers in the event of bank failures. The FDIC not only protects deposits, the also put together the Problem Bank List. It is a confidential roster of institutions at risk of financial failure. As of 2024, 63 banks are on the list. This number has grown from 52 in 2023. These banks hold a combined $82.1 billion in at-risk assets.1
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A report from the Klaros Group highlights the scope of the issue. They found 282 institutions are highly exposed to commercial real estate (CRE). They are grappling with $527 billion in unrealized losses from mortgage-backed securities.3
Rebel Cole is a finance professor at Florida Atlantic University. She noted that 67 of the largest U.S. banks have CRE loans exceeding 300% of their equity. Falling property values and high refinance costs are gravely threatening to their financial stability.
Cole said, “We could see additional banks fail and will have to see if this will ultimately lead to another banking crisis.”4
Federal Reserve Chair Jerome Powell recently acknowledged the long-term challenges. “This is a problem we’ll be working on for years more, I’m sure. There will be bank failures,” he said.5
What Happens When Banks Fail?
Bank failures don’t just impact the institutions themselves. They send shockwaves through the broader economy. When a bank becomes insolvent, its liabilities exceed its assets. It is unable to meet its financial obligations. This triggers a loss of confidence among depositors, often leading to bank runs. Which further exacerbates the liquidity crisis.
The fallout from a bank failure contains the risk of contagion. That the crisis will spread, and other banks will be put at risk. Bank failures can lead to an overall slowdown in lending. The economy can grind to a halt, potentially triggering a recession or worse. Government intervention requiring taxpayer-funded bailouts may be a final resort to prevent systemic collapse.
Already, more than 200 smaller banks are reporting unrealized securities losses greater than 50% of their equity capital. Should another major bank fail, it could spark a domino effect of depositor panic and financial instability.
The Push for Deregulation
Talks of reducing oversight of the banking industry are gaining momentum. The Trump administration has proposed eliminating the FDIC or merging it with the Treasury department. They aim to make government more efficient and reduce costs.
Critics of the FDIC argue that it creates a “moral hazard.” That banks are more likely to take greater risks if customer deposits are guaranteed.
As part of the Department of Government Efficiency, Elon Musk is pushing the shake up. He is also targeting the Consumer Financial Protection Bureau (CFPB). In a tweet, Musk stated, “Delete CFPB. There are too many duplicative regulatory agencies.”6
Risks of Deregulation
While deregulation may appeal to Wall Street, it comes at a precarious time. Public confidence in banks was already shaken after the collapses of Silicon Valley Bank, Signature Bank, and First Republic Bank. Further loosening oversight could leave depositors even more vulnerable.
Without FDIC insurance, consumers would likely become more cautious about where they deposit money. They are likely to stay with large institutions they perceive as safer. This could spell the end of small and regional banks. The lack of insured savings may also increase the likelihood of bank runs during economic uncertainty. Or people can simply move away from banks altogether, undermining a vital component of our economy.
Conclusion
With the banking sector under intense scrutiny and facing risks from high interest rates, commercial real estate exposure, and political calls for deregulation, it’s clear that traditional savings accounts may no longer be the safest place for your money.
One way to safeguard your wealth is with physical precious metals like gold and silver. Unlike bank deposits, which are tied to the health of financial institutions, gold and silver offer tangible value and are not subject to the same systemic risks.
By holding your assets in a Gold IRA, you can diversify your portfolio and hedge against the uncertainties of an unstable banking system. Precious metals have historically served as a reliable store of value, especially during times of economic turmoil. Call American Hartford Gold today at 800-462-0071 to learn more.
Notes:
1. https://www.noradarealestate.com/blog/fdic-problem-bank-list/
2. https://chaikinanalytics.com/powerfeed/articles/americas-banking-crisis-isnt-over-yet
3. https://www.cnbc.com/2024/03/19/where-cracks-in-the-banking-sector-may-appear-without-more-ma.html
4. https://www.mpamag.com/us/specialty/commercial/commercial-real-estate-loans-put-67-banks-at-risk-of-collapse/492047
5. https://www.housingwire.com/articles/there-will-be-bank-failures-fed-chief-tells-lawmakers/
6. https://truthout.org/articles/elon-musk-targets-consumer-protection-agency-for-deletion/
