Three of the largest five bank failures in US history happened between March and May of 2023: Silicon Valley, Signature and First Republic.
Most investors are barely aware. The collapse in regional banking was quickly papered over by a Federal Reserve program to buy the bad bonds at face value.
A full-blown crisis was narrowly averted, but it didn’t go away.
Yesterday, Zions Bancorporation and Western Alliance Bank dropped 13% and 10% respectively, dragging the S&P 500 down with them.
In pre-market trade this morning, the broader banking sector also got whacked. JP Morgan was down 1.5%, while Citi fell 1.9% and Bank of America was down 2.9%. In Europe, meanwhile, the regional Stoxx Banking Index fell almost 3%.
The Federal Reserve stopped tracking “unrealized losses” at regional banks in 2022. But occasionally, a snippet of data will come to light, like this piece from the FDIC earlier this year:
America’s regional banks are sitting on substantial losses (Source: FDIC)
For individual investors, yesterday’s headline selloffs are worth paying attention to. In a credit crisis, banks go first.
~ Addison
P.S. “The private credit market is showing signs of cracking too,” notes Andrew Packer. The popular alternative asset class has notoriously opaque reporting requirements. Andrew digs into private credit in the October Grey Swan Bulletin – which will hit members’ inboxes (as soon as Addison gets his lead on Anduril and Palmer Luckey written!)
Much like Treasury Secretary Scott Bessent alludes to financing the national debt, stress in banks and in the credit market is the leading edge of a broader crisis in debt financing. That’s another reason to like the precious metals here.
Gold at $4,300 isn’t a mania. Silver above $50 isn’t a panic. They’re the visible signs of trust sliding down the pyramid to safer assets.
Check out the Dollar 2.0: The Final Countdown replay, right here.
If you have any questions for us about the market, send them our way now to: feedback@greyswanfraternity.
