Regional Banks Threatened by Coronavirus Crisis
As crypto assets soared during the Silicon Valley Bank meltdown, regional banks are now borrowing at ~4.5% to plug deposit outflows, causing net interest losses and lower earnings.
Cathie Wood
Founder, CEO and CIO @ARKinvest. Thematic portfolio manager for disruptive innovation, mom, economist, and women's advocate. Disclosure: https://t.co/jyq2DveCyo
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Ironically, as crypto assets soared during the Silicon Valley Bank meltdown, this administration suggested that investors in regional banks - equity and bond holders - should prepare to be “wiped out” in the aftermath of an unprecedented 20-fold increase in the Fed funds rate.
— Cathie Wood (@CathieDWood) March 23, 2023 -
Now we are hearing anecdotes not only that businesses and individuals are hedging their fiat assets with some crypto assets but that they also are lowering risk and increasing returns by shifting from low yielding bank deposits into higher yielding money market funds, a win-win.
— Cathie Wood (@CathieDWood) March 23, 2023 -
As a result, now that they can borrow at will from a government facility at ~4.5%, regional banks seem to be moving from a liquidity crisis to a slower moving solvency crisis.
— Cathie Wood (@CathieDWood) March 23, 2023 -
Against depressed interest rates on the long-term assets they purchased during the coronavirus crisis, banks now are borrowing at ~4.5% to plug deposit outflows, causing net interest losses and lower earnings that will erode their equity and threaten their future.
— Cathie Wood (@CathieDWood) March 23, 2023 -
Given this negative feedback loop, why will deposits flow back to regional banks? If they do not, then M2 growth is likely to accelerate further into negative territory for the first time since the 1930’s, putting significant stress on both commercial and residential real estate.
— Cathie Wood (@CathieDWood) March 23, 2023 -
Why have bitcoin and other crypto assets appreciated during this banking crisis? In our view and in contrast to those in the traditional financial world, many crypto assets face no central points of failure: they are decentralized, transparent, and auditable.
— Cathie Wood (@CathieDWood) March 23, 2023 -
Why would regulators deprive US citizens of access to crypto assets, “insurance” born in the 2008-09 global financial crisis against the probability, hopefully low, that once again the Fed and regulators have made policy mistakes that threaten our well-being?
— Cathie Wood (@CathieDWood) March 23, 2023