"It's Safe!" - FDIC Urges Americans To Keep Their Money In The Banks

"It's Safe!" - FDIC Urges Americans To Keep Their Money In The Banks


Tyler Durden

Authored by Simon Black via SovereignMan.com,


Yesterday the Chair of the FDIC released an astonishing video asking Americans to keep their money in the bank.


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https://youtu.be/jdjzIaEDTnw

https://youtu.be/jdjzIaEDTnw


Accompanied by soft piano music playing in the background, the official said:

“Your money is safe at the banks. The last thing you should be doing is pulling your money out of the banks thinking it’s going to be safer somewhere else.”

Amazing. I was half expecting her to waive her hand and say, “These aren’t the droids you’re looking for…”

As I’ve written before, there’s $250 TRILLION worth of debt in the world right now: student debt, housing debt, credit card debt, government debt, corporate debt, etc.

And let’s be honest, some of that debt is simply not going to be paid.

Millions of people have already lost their jobs. Millions more (like the 10 million waiters and bartenders across America) are barely earning anything right now because their businesses are closed.

A lot of those folks have no emergency savings to fall back on during times of crisis, so they’re going to be forced to choose: pay the rent, or buy food.

The government has already suspended evictions and foreclosures, which is a green light for people to stop paying the rent or mortgage.

And that means banks will take it in the teeth.

This is what happened back in 2008– millions of people across the country stopped paying their mortgages, and the banking system nearly collapsed as a result.

Today it’s a similar situation; a lot of people are going to stop paying their mortgages, credit cards, auto loans, etc. And that directly impacts the banks.

Businesses are in deep financial trouble too.

According to the Wall Street Journal, the median small business in the United States has a cash balance that will last them just 27 days.

And many are operating with an even smaller safety net; the median restaurant, for example, has a cash balance of just 16 days.

These businesses have been told to close down due to the Corona Virus. And it’s likely that many of them will never re-open.

A lot of these companies also have debt. And if they close, those debts will never be repaid.

Even big businesses are susceptible to failure.

Every airline, cruise ship operator, hotel, retail chain, etc. is on the ropes, and each of these companies has borrowed billions of dollars.

This pandemic could easily push several big companies into bankruptcy.

You probably know that old saying– if you owe the bank a million dollars and can’t pay, you have a problem. If you owe the bank a billion dollars and can’t pay, the bank has a problem.

That’s what we’re seeing now.

Countless unemployed individuals, millions of shuttered small businesses, and bankrupt big companies collectively owe the banks trillions of dollars. And many of them can’t pay… which means the entire banking system has a problem.
How much money will the banks lose because of this pandemic?

It could easily end up being hundreds of billions of dollars, even several trillion dollars.

No one knows. But it’s not going to be zero. It’s silly to think that banks are immune to the Corona virus, or to assume that not a single bank is going to run into problems.

Don’t get me wrong– I’m not saying that the banking system is about to collapse. There are stronger banks and weaker banks. Many of them will survive, others will fail.

What I am saying is that there are enormous and obvious risks that threaten the banking system.

As I’ve written several times over the past few weeks: Anyone who says, “No, that’s impossible,” clearly doesn’t have a grasp of what’s happening right now. EVERY scenario is on the table, including severe problems in the banking system.

But the FDIC insists that there’s nothing to worry about.

That’s ridiculous. The FDIC only has $109 billion to insure the entire $13 trillion US banking system. That’s less than 1%!


The FDIC also insists that they’ve always been able to prevent depositors from losing money. “Not a single depositor has lost money since 1933.” And that’s true.

But they’ve never had to deal with this before. Neither the FDIC, nor any bank, has ever had to deal with a complete shutdown of the economy… or potential losses of this magnitude.

The Covid-19 impact on the banking system could be 10x bigger than the housing meltdown in 2008.

If the pandemic ends up causing trillions of dollars of loan losses, the FDIC won’t have enough ammunition to fix it… and that doesn’t even consider trillions of dollars more in potentially toxic derivatives exposure.

So to casually brush off these risks and claim that everything is 100% safe seems incomprehensible.

It also raises an interesting point: why is the FDIC asking us to NOT withdraw our savings?

If the financial system is so safe, it shouldn’t matter to them whether or not people keep their money in the banks.

Yet they still felt the need to specifically ask people to NOT withdraw their money… and tell us that we shouldn’t keep cash at home.

I’ll reiterate a point that we’ve made again and again at Sovereign Man over the years: it makes sense to have some physical cash in an at-home safe.

I’m not suggesting you keep your life’s savings in physical cash. But a month or two worth of expenses won’t hurt.

There’s very little downside– your bank probably only pays you 0.01% anyhow, so it’s not like you will be giving up a ton of interest income.
And given that the FDIC is specifically saying that you shouldn’t do this, a prudent person might wonder what’s really going on.

And to continue learning how to ensure you thrive no matter what happens next in the world, I encourage you to download our free Perfect Plan B Guide.

https://www.zerohedge.com/personal-f...ir-money-banks

Bank Branch in New York Suffers Cash Shortage Amid Coronavirus Panic

March 16, 2020

Anton Lucian

The viability of fiat currency is being stretched to its limit as banks run out of cash in New York amid the novel coronavirus pandemic.

Fear continues to spike and reports are now confirming that New Yorkers are taking out cash in record numbers, particularly the wealthy.

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NYC Banks Struggle to Keep Up with Withdrawals

On Thursday, customers at a Midtown Manhattan Bank of America branch found that they were unable to take out cash. The bank had simply run out of $100 dollar bills, with many customers requesting to take out tens of thousands of dollars at a time.

According to The New York Times, the Bank of America branch at 52nd Street and Park Avenue temporarily ran out of bills and had to restock. [The New York Times] The shortage was caused by a major rush which saw increased demand for large bills.

The situation is the same in many other parts of New York, especially the more affluent areas. A JPMorgan Chase teller said that there has been a “nonstop” flurry of customers coming in and out over the past two days. They are stockpiling cash out of panic.

With the transition toward digital money, many banks were not expecting the rush and have therefore been unprepared. As of now, the Federal Reserve Bank of New York claims that it can effectively deal with demand surges, such that are common during the holidays and long weekends.

However, the current rush is unprecedented amid the coronavirus panic. The rush has also largely been wealthy individuals who have been stocking cash and products in bulk, concentrated in areas like the Hamptons, as Bloomberg reports. [Bloomberg]

Bank Runs Are the New Fear

Bank runs have not happened in the United States for a long time. In China, however, they are becoming more common. As BeInCrypto reported, China experienced multiple bank runs in November 2019. Hong Kong, of course, also saw similar developments at the height of its riots. Hong Kong ATMS evenran out of money then.

Such events show the limits of the current fiat-based system. Historically, such happenings have also been linked to increased demand in alternatives, like Bitcoin or gold. However, with the markets still rattled by the massive drop on Thursday, many are still wary of jumping into cryptocurrencies at this moment.

Perhaps, if these cash shortages worsen in the United State and elsewhere, we could see a clear rise in demand for Bitcoin as many people realize the need to take back their financial sovereignty.

https://beincrypto.com/new-york-sees...navirus-panic/

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Contagion: Bank Runs and COVID-19

March 02, 2020



“[I]f there is a single dominant lesson from 1918, it’s that governments need to tell the truth in a crisis...Those in authority must retain the public’s trust. The way to do that is to distort nothing, to put the best face on nothing, to try to manipulate no one.” John M. Barry, “The Great Influenza: The Epic Story of the Deadliest Plague in History. (Cited by @michikokakutani, Twitter, February 28)


There are currently more than 85,000 confirmed cases of COVID-19 in at least 60 countries. The contagion rate could be double that of the common flu, with the fatality rate as much as 20 times higher. But, these estimates—the rate of transmission, the frequency with which people exhibit symptoms, and the consequence of becoming ill—are all extremely uncertain. In addition, since it is a new virus, we have neither tested therapies nor vaccines.

So we know very little about this pathogen, except that everyone is worried. And, with the number of cases rising each day, intensifying concerns probably will lead many people to behave in ways that undermine economic activity. They will shy away from places where the virus can be transmitted. That means avoiding mass transit, schools, and workplaces.


Moreover, many people will stay away until they are confident that the disease is manageable. That confidence probably requires an effective treatment, a very low likelihood of infection, or both. Not surprisingly, many observers are reducing their projections for economic growth this year, while financial market participants anticipate easier monetary policy to cushion the shock.

The challenge of re-establishing public confidence that it is safe to venture out bears striking similarity to the one that authorities face in stemming a bank run. Our ability to identify and quarantine people infected with COVID-19 is analogous to our ability to recognize and isolate a bank bordering on insolvency.


Banks are like black boxes: outside observers know little about the value of their assets, especially in the aftermath of a shock, like a broad-based plunge in asset prices. As a result, bad news can lead depositors to question the solvency of their bank.


Furthermore, banks are vulnerable: the sequential process of redeeming deposits at face value creates a first-mover advantage: those who get to the bank first get paid in full, while those who are patient (or just slow) may receive nothing. This leads to a run.


What is more, like viral illnesses, bank runs are contagious. The news about a run on a specific bank alerts everyone to the fact that there may be other “lemons” among the universe of banks, turning a run in to a panic. Put differently, when people have insufficient information, shocks can cause them to behave in ways that amplify rather than dampendisturbances. Even if everyone believes that most banks are solvent, uncertainty about this bank or that bank can be enough to motivate a run.


These similarities suggest that the means we use to control bank runs also may be useful in managing the economic consequences of an emerging pandemic like COVID-19.


By lending against good collateral to solvent banks, a central bank can easily manage a liquidity-driven run. But if banks’ solvency is in question, then the problem shifts to one where authorities need to credibly demonstrate the health of the banks. Amid frozen markets and fire sales, how can they do that?


In our experience, the most effective mechanism to arrest financial contagion driven by solvency concerns is an extraordinary disclosure mechanism. Stress tests that aim to reveal banks’ true condition are the most powerful such tool. In late 2008, doubts about the capital adequacy of the largest U.S. intermediaries made potential investors, creditors, and customers wary of doing business with them, leading to a virtual collapse of unsecured finance. The May 2009 publication of stress test results for the 19 largest U.S. banks constituted a key part of the remedy.


Why did the U.S. stress tests restore confidence? One reason is that they were serious: a bank that passed the test could still lend to healthy borrowers despite a deep recession. But people also had to believe that the disclosure was truthful. Wouldn’t policymakers have an incentive to declare all banks healthy, even if some were not?


The key to U.S. authorities’ credibility in the midst of the financial crisis was that, even after making large capital injections in late 2008, they still had the means to bail out a failing institution. As a result, investors accepted the news that the stress-tested banks “only” needed to add $75 billion in equity funding, allowing newly confident private markets to re-capitalize them for the first time since Lehman’s failure.


To limit the economic fallout from a pandemic, the requirement of thorough and credible disclosure is the same. Even if people believe that almost everyone is healthy, there is an incentive to stay away from places where you may encounter someone carrying the illness. Daily news of transmission in dozens of countries leads to the obvious conclusion that infection can happen anywhere. And, just as it is costly to observe the health of a bank in a crisis, in a pandemic it is difficult or impossible to observe whether someone sitting next to you is carrying (and spreading) the disease. Every cough and sniffle trigger fear.


The lesson from the 2009 stress test is that sound science and public health policy are critical to limiting economically destabilizing behavior. For people to regain the confidence needed to go about their normal daily business, governments will need to demonstrate some combination of: (a) credible testing to demonstrate the population is nearly virus free; (b) the effective quarantine of those stricken; and (c) advances in treatment that limit the pathogen’s impact.


Success requires that people view authorities as extraordinarily trustworthy. This means providing detailed, up-to-date information on the spread of the illness, its severity and the methods available for treatment and control. As John Barry argues (see the opening quote), they have to stick to the facts, and shun politics entirely. Any attempt to color the facts weakens the credibility of the announcements and delays the point at which confidence returns.


https://www.moneyandbanking.com/commentary/2020/3/2/contagion-bank-runs-and-covid