If 2023 feels a lot like 2008, you’re not alone.
When Bear Stearns – my former employer – collapsed in March 2008, it took much of my nest egg down with it.
Investors were in limbo as Wall Street powerhouse JPMorgan Chase stepped in to take over. Bear was just the first of 25 banks to fall as the financial crisis unfolded. Then, the crisis led to a sharp decline in many assets, affecting millions of Americans.
Now, history is repeating itself. Since March of this year, five major global banks have collapsed.
The most recent one to fall, First Republic Bank (FRCB), became the second-largest bank failure in U.S. history. It folded on the back of a 1930s-style run on its deposits.
After being seized by federal regulators in May, most of its business was sold to JPMorgan Chase… just like Bear was 15 years ago.
Now, California-based PacWest looks like it could be the next bank to bite the dust – along with six others, which I’ve detailed in a special report. (It’s called The 722 Bank Bombshell: Is YOUR Bank Next to Fail? And you can download it, for free, right here.)
More on that in a moment. But first, let’s look at how we got to this mess.
The Media Got It Wrong
When Silicon Valley and Signature Bank collapsed in March, the talking heads said the crisis was contained.
Wall Street analysts and the financial media thought these events wouldn’t cause a banking meltdown.
Treasury Secretary Janet Yellen and Federal Reserve Chairman Jerome Powell called the banking system “sound and resilient.”
But I argued otherwise. I predicted more contagion across the sector. Here’s what I told you on March 30:
The Fed has already loaned $318 billion to the banks. That’s about half of what it loaned to the financial system during the entire global financial crisis of 2008.
Bank analysts think recent events won’t cause a banking meltdown, but I expect more contagion across the sector.
U.S. banks are sitting on $620 billion in unrealized paper losses on government securities. And as we’ve seen, those “paper” losses can become very real when a bank run occurs.
It’s like banks are sitting on a financial time bomb.
And as I detail in my 722 Bank Bombshell special report (upgrade to VIP to download it), that’s exactly what’s happening now.
Trust in the Banking System Is Crumbling
The Fed won’t admit it, but its actions caused problems in the banking sector.
Last year, the Fed raised rates too much, and too fast. This hurt Treasurys, which banks hold for liquidity. That created massive paper losses for banks.
In normal times, banks can navigate some liquidity problems. Even if they face paper losses.
But when a lot of depositors take their money out at the same time, these paper losses turn into real ones.
That’s what happened with First Republic, Silicon Valley, and Signature this year.
Plus, the banks that collapsed this year offered lower deposit rates than their competitors.
Combined with the Fed’s interest rate hikes, depositors had no real incentive to keep their money in these banks anymore. Eventually, they turned elsewhere to get better interest on their deposits.
In the case of First Republic, the bank revealed it had lost more than 40% of its deposits in March. In dollar terms, deposits plunged by more than $100 billion in the first quarter alone.
To put this in perspective, U.S. banking deposits as a whole fell $166.38 billion in the fourth quarter of 2022.
In an average quarter, no single bank has billions of dollars’ worth of deposit outflows. In fact, when the economy is doing well, banks don’t normally experience net outflows of funds at all.
But that’s not what we’re seeing across the banking sector.
You see, the banking system – just like the economy – is built on trust. So when integrity in the banking system is tested, trust starts to crumble.
That’s why this systemic problem has not gone away. Just take a look at the chart below…
It shows U.S. banks’ paper gains compared to their losses, going back to 2008.
As a group, U.S. banks are sitting on $620 billion in unrealized paper losses on government securities.
I’ve said it before, but I’ll say it again…
It’s a ticking time bomb waiting to go off.
Worse, banks expect to earn less from their loan businesses this year. That’s because more customers are putting their money in Treasurys instead of bank deposits.
That means banks have less capital to lend. And that means we’re headed for a credit crunch in the banking system.
Is Your Bank Next to Fall?
Here’s the bottom line. Banks are getting squeezed on all sides. Some will weather the storm.
But for others, there’s more trouble ahead.
Pacific Western (PACW), based in California, is one of those banks.
It has $44 billion in assets. And it’s flashing the classic warning signs of a bank failure.
In the first part of this year alone, its deposits dropped $6.94 billion. That’s 24.5% of its accounts.
The main reason? Over the last few years, PacWest was paying an interest on its deposits that was way too low. Just like Silvergate, SVB, and First Republic.
And after JPMorgan took over First Republic, PacWest saw another rush of deposit withdrawals.
PacWest reported that customers withdrew about 9.5% of total deposits. Shares took a 30% dive – before being halted for volatility. As we write, PacWest’s stock is down 67%.
We wouldn’t be surprised if we see a big story about its collapse sometime soon.
And PacWest isn’t the only bank flashing warning signs.
Here at Rogue, we’ve dedicated hours of research to find out which banks could be the next to collapse.
We prepared a report with our findings, called The 722 Bank Bombshell: Is YOUR Bank Next to Fail?
This level of research is normally reserved for our paid subscribers. But because of how critical this situation is, I’m sharing it with all my readers.
As I’ll explain in my Countdown to Chaos emergency briefing on June 21, the crisis that’s coming could mean huge losses for every American.
In the days ahead, we could see a run on dozens of banks… and a scramble to move wealth like you wouldn’t believe. And it’s all set to unfold starting on July 31.
If you don’t prepare today, your nest egg could be at risk. I don’t want you to be blindsided. So please, take a moment to upgrade to VIP.
When you do, my team will send you my new special report, The 722 Bank Bombshell, right away.
Editor, Inside Wall Street with Nomi Prins
P.S. On July 31, the Federal Reserve is set to claim unprecedented power over American savers and investors. Plans are underway to convert bank accounts from failed banks into “Fed Accounts” – managed and overseen by the Fed and a handful of mega-banks.
But there’s one asset with maximum upside potential that can help you turn the tide on this coming event. It’s not a stock… a bond… or an option.
Most people have never heard of it. Yet it has a history of turning every $10,000 invested into more than $850,000.
I’ll reveal all the details you need to know about this asset class in a special briefing on Wednesday, June 21 at 8 p.m. ET. The best part is, it’s free to attend. So I hope to see you there.
In the meantime, I’ve put together a report to help you take action against the banking crisis. It’s called The 722 Bank Bombshell: Is YOUR Bank Next to Fail?
And the only way to get access is to upgrade to VIP.
Don’t wait for your bank to end up on the front page of Fox Business or CNN. Upgrade to VIP right here, and I’ll see you on June 21.