Report says nearly 200 US banks could fail if another bank run happens.

 

A SVB bank. New York Post/Reuters. 

A new report says that nearly 200 US banks could fail if another bank run happens. New York Post. 186 banks could fail if half of their customers withdraw their funds in another bank run. Even insured depositors would have trouble getting their money if such a run were to happen. The concern is that these banks are overleveraged in treasury bonds. Treasury bonds are considered an extremely safe investment but rising interest rates have damaged the value of these bonds. This could lead to another bank collapse as with SVB. In SVB's case, selling those bonds to raise capital cost them billions of dollars and led to a bank run, causing the bank to collapse totally. 

My Comment:

Keep in mind that these banks would only collapse if a bank run happened and that depends on how people perceive the economy is doing. Right now I don't think people have much confidence in the banks or the economy. I know I personally have zero faith in Joe Biden to handle this crisis. 

There aren't any good solutions of this problem. These bonds are losing value due to high interest rates, which was an effort to reduce inflation. If you lower those interest rates you end up causing more inflation. That's a bad thing because inflation is already crushing the economy and is totally out of control. 

But the other solution seems just as bad. People are asking for all bank deposits to be guaranteed, not just ones up to $250,000. If that happens and a major bank run happens the government could be liable for billions or even trillions of dollars with no way to pay for it. Other than printing money that is and the problem with that is obvious. Printing all that money would cause even more inflation. 

Of course there is the option of raising taxes to pay for it but that is a political impossibility. Biden and the Democrats know if they raise taxes they would be screwed if they tried and even if they did it wouldn't happen because Republicans would block it. 

The final option is to just let the banks fail. I personally think that's probably what should be done, though I also think it's a political impossibility. Doing so would have a negative effect on the economy and a lot of people could lose their jobs. But I personally think it would be better than a massive inflation causing bailout. 

Still, there are no good choices here and I think whatever happens the economy is going to be in rough shape. I don't see how you prevent another bank run in a country with free speech. People will want to avoid risk and if they sense weakness they will try and get their money out. When that happens were are looking at a dire situation no matter what the solution ends up being. 

With all that being said, it's very possible that nothing happens with the banks. It's possible that there will be enough other distractions that people won't be trying to pull their money out of the bank. But I just don't have much faith in our government and our financial institutions.