Despite endless promises from Washington DC that there would never be a bank bailout again, the Biden administration bailed out Silicon Valley Bank (SVB) by removing the $250,000 cap on deposit insurance. Then Treasury Secretary Janet Yellen added that going forward, only banks that posed SYSTEMIC RISK to the economy would be bailed out. Translation: only the Big Four Too Big To Fail (TBTF) banks will be bailed out. This means that the Biden administration prefers big banks to community banks. “Middle-class Joe” likes BIG Pharma, BIG defense, BIG tech, BIG media and now BIG banks. He is expected to rename himself “Big Joe” Biden for the 2024 presidential election.
Of course, we are aware of the Fed’s about-face on reducing its balance sheet (green line). While the Bankrate 30-year mortgage rate has now fallen below 7% to 6.97%, it has only fallen -15 basis points since the recent peak of 7.12% on 02/03/ 2023 when the 10-year Treasury yield was 4.056%. Thus, the 10-year Treasury yield has fallen by -62.7 basis points since 02/03/2023 while the 30-year mortgage rate has only fallen by -15 basis points.
On the European banking front, Credit Suisse is kaput and Swiss Bank and Deutsche Bank are considering buying Credit Suisse’s assets. In other words, MORE bank consolidation.
Here is a chart of US bank consideration in 2009 with 37 banks in 1990 shrinking to 4 mega, TBTF banks in 2009 that remain today. But will the now unprotected community and local banks be absorbed by the 4 superbanks? Time will tell, but if history repeats itself, the answer is yes.
The KBW banking index continued to fall despite bailouts from SVB and Signature Banks. But at least the total returns of the Treasuries and MBS that the banks hold have increased with the return of QE!
Yellen and Biden are competing for the Knucklehead Of The Century award. While not as sloppy as the sudden withdrawal from Afghanistan, bailing out the elites of Silicon Valley will not end well.