Jamie Dimon, the billionaire CEO of JP Morgan Chase, the country’s largest bank, got a few of his homies together last week and the group of them (11 banks) deposited a total of $30 billion in San Francisco based First Republic Bank in an effort to prevent the bank from failing.
Republic’s stock recovered briefly but then headed South again the next day (Friday the 17th). The slide continued on Monday, and it is now reported that Dimon is consulting First Republic on the possibility of a sale.
This banking scene is moving fast and Republic may be sold by the time we get this post published. This is not a certainty, but whether Republic is sold or not, this banking situation is not over.
The basic problem, simply stated, is that many banks have low interest government bonds on their balance sheet – they are part of the bank’s assets. As the Fed has been increasing interest rates in an effort to stem inflation, it has caused the value of these bonds to fall. (Higher interest rates cause the principal value of bonds to fall).
As the value of their bonds fall, so too does the equity – the bank’s capital. When the bank’s capital, falls to a certain point, the FDIC moves in. As this is happening, depositors, concerned about the safety of their deposits start withdrawing them.
“But SVB [Silicon Valley Bank] isn’t the only institution with that issue. US banks were sitting on $620 billion in unrealized losses (assets that have decreased in price but haven’t been sold yet) at the end of 2022, according to the FDIC.”
This is what I mean when I say, “…this banking situation is not over.”
What to do?
1- My mantra: Have at least 10% of your reserves in Gold and or Silver. Ideally more, but I’d consider that a minimum.
2- There are bank rating websites that provide ratings of bank’s stability. Some are okay. Others are poor judges of a bank’s financial strength.
The best one I have found is:
They generally rate banks higher than I would, but their star rating system (0 to 5 stars) at least gives you a sense of your institution. Be conservative and deduct one star from their rating.
You can get the initial “star rating” for free. They have additional reports you can purchase that dig more deeply into the bank’s financial statistics. The various individual reports are under $100.
3-If you want me to do a more in-depth review of your bank’s safety send me an email to firstname.lastname@example.org. I charge for this service – it takes some time and expertise to go through the ban–k’s financial statements. I charge $250 for a bank safety analysis and $375 if you also want a recommendation for a different -safer- bank.
4- If you aren’t subscribed to my newsletter, you can do so here:
Keep your powder dry
John Truman Wolfe