The Biggest Bank Run Ever

  • The bank crisis is back in force…
  • Four reasons the Big Four banks are vulnerable
  • Jim Rickards: “Crises can take a year or more”
  • Financial warfare in disguise (BRICS)
  • Twitter’s new CEO is an Establishment twit… Feds: Oops!… I Did It Again… The crying need for a Fort Knox audit… And more!

Aaaand… the bank crisis is back in play.

A week ago today, the narrative was that PacWest Bancorp was out of the woods.

There wasn’t anything to support that narrative other than a huge rebound in the share price — which we attributed to short sellers getting momentarily squeezed.

Yesterday, PacWest disclosed that still more deposits had flown out the door in search of higher yields; the bank lost 9.5% of total deposits in the space of a week. PACW shares tumbled 23%. As we write this morning, the share price is little moved.

But it’s not just the midsize regional players potentially in trouble. A new study shows one of the Big Four is at risk of a bank run.

Researchers from USC, Northwestern, Columbia and Stanford collaborated on the study, titled “Monetary Tightening and U.S. Bank Fragility in 2023: Mark-to-Market Losses and Uninsured Depositor Runs?”

The study zeroes in on the very thing that took down Silicon Valley Bank in March — losses on Treasury debt that’s “held to maturity” by a bank. That is, the bank has no intention of selling these securities, so they’re valued on the bank’s books at par — even if the real-world price is much lower.

As you might recall, when SVB started hemorrhaging deposits, the only way it could raise cash was by selling those securities at fire-sale prices.

The researchers analyzed publicly available data and ran scenarios for several categories of banks, ranked by size. The standout finding: One bank with “assets above $1 trillion” is at risk of the SVB scenario. Only the Big Four banks meet that criteria — JPMorgan Chase, Bank of America, Citi and Wells Fargo.

No, the professors do not identify which bank they’re talking about. Prodded by the editors of the Wall Street On Parade website, they demurred. (We’d love to have been a fly on the wall as these professors consulted with attorneys about how candid they should be with their findings.)

So why, after every time Wall Street and the media sound the all-clear, does the bank crisis reassert itself? Paradigm macro maven Jim Rickards cites four reasons.

Reason No. 1 became apparent with the knee-jerk decision to designate SVB as “systemically important” — meaning all deposits would be guaranteed, both insured and uninsured. At that point, “depositors had no rational basis for determining if their banks were systemically important or not. This uncertainty caused depositors to pull money from medium-sized regional banks and place it with the giants like JPMorgan and Citi that were certain to be deemed systemically important (or ‘too-big-to-fail’) and therefore would be protected.”

Reason No. 2: “The system-wide lending facility created by the Fed would be funded with newly printed money,” says Jim. “This trillion-dollar expansion of the money supply would fly in the face of the Fed’s efforts to reduce the money supply alongside interest rate hikes that started in early 2022. The Fed was now easing money and tightening money at the same time.”

You can see the spike in the Fed’s balance sheet after the rescue of SVB in March. Yes, the line on that chart has retreated in recent weeks — but in the last few days it’s been leveling off with the Fed’s efforts to shore up PacWest and other ailing regional banks.

bank rescues

Reason No. 3:“The FDIC insurance fund was badly depleted by the depositor bailouts,” Jim says. “Insurance is only as good as the insurance company behind it. Confidence might be lost in the FDIC itself, which would leave all deposits in jeopardy regardless of the size of the bank holding them.”

Only yesterday, the FDIC fleshed out details of how it would replenish the fund: Just over 100 banks will be hit with a “special assessment” totaling $16 billion. If you’re one of those banks’ customers, you’ll end up paying in the form of higher fees or lower interest payments. “As always,” says Jim, “everyday Americans end up paying for the bailouts of rich corporations and depositors.”

Reason No. 4: “The Fed and FDIC had pulled all of their rabbits out of the hat. Once you guarantee every deposit in the system and agree to lend at par against every underwater bond in the system, what else is there? The Fed and FDIC were out of rabbits.”

So what now? Jim can’t say this often enough: “Most acute crises can take a year or more to play out.”

The 2008 financial crisis began in February 2007 when HSBC warned that defaults on subprime mortgages would put a dent in its profits; the collapse of Lehman Bros. didn’t happen until September 2008.

A decade earlier, the “Asian contagion” began in June 1997 with a currency crisis in Thailand. It climaxed with Russia’s default in August 1998 and the collapse of the Long Term Capital Management hedge fund a month later.

In the present moment, “The crisis is not over, it’s just on pause,” Jim says. “A much worse stage is coming that will include a panic worse than 2008. A financial panic is different from a severe recession. We are likely to get both this year.”

With that in mind, Jim cordially invites you to his “Secrets of Jekyll Island” live webcast next week. He’ll be at Jekyll Island, Georgia — where America’s ruling class mapped out the formation of the Federal Reserve in 1910. He’ll be joined by former Fed insider Danielle DiMartino Booth.

Together, they’ll unpack the coming crisis and what you can do to protect yourself. This is not a sales pitch for one of our high-end trading services — it’s just our way of saying thank you for being a Paradigm Press customer.

We implore you to clear your schedule: The event goes live next Wednesday at 1:00 p.m. EDT. The signup link is right here. And you’re welcome to pass it along to any friends and family who might be interested.

The big economic number of the day is rotten no matter how you look at it.

The University of Michigan is out with its consumer sentiment survey. We think this measure is nigh-useless, but for whatever it’s worth, the final May figure came in way below expectations — 57.7 versus the typical Wall Street analyst’s guess of 63.

Worse is the inflation-expectations component of the survey — because the Federal Reserve looks closely at this number to set interest rate policy. On average, survey respondents expect 3.2% inflation every year for the next five years — the highest reading since August 2008.

Thus, you can’t rule out the possibility the Fed will jack up short interest rates one more time next month — even if the betting in the futures market says the Fed will “pause.”

Meanwhile it’s a “meh” day for the markets as the week winds down.

All the major U.S. stock indexes are in the red, but not dramatically: The Nasdaq notched a year-to-date high yesterday, but as we write it’s down about a half percent to 12,258. As for the banks, the KBW Bank Index is down 1.5%, testing its year-to-date lows.

Gold continues to hold the line on $2,000 — but after yesterday’s smackdown and more selling today, silver is set to end the week below $24. Crude is drifting down close to the $70 mark again. Bitcoin sits near two-month lows at $26,404.

This headline smacks of financial warfare in disguise…


From the Financial Times: “The U.S. has accused South Africa of supplying arms to Russia in a covert naval operation, escalating a foreign policy crisis for President Cyril Ramaphosa over the country’s ties to the Kremlin and position on the Ukraine war.”

Says State Department spokesman Vedant Patel, “The U.S. has serious concerns about the docking of a sanctioned Russian cargo vessel at a South African naval port in December of last year.”

The FT points out that this development comes at a delicate time for South Africa’s government: “Ramaphosa has also extended an invitation for Russian president Vladimir Putin to attend a BRICS leaders’ summit in Johannesburg in August — a move that has backfired on Pretoria after the International Criminal Court indicted Putin for war crimes. South Africa, a member of the ICC, would be legally obliged to arrest Putin if he travels there.”

What the FT does not point out is that high on the BRICS agenda — remember, that’s Brazil, Russia, India, China and South Africa — is drawing up plans for a new payment currency as an alternative to the U.S. dollar.

Expect many twists and turns in this story in the run-up to the summit in August. (And don’t forget South Africa’s power grid is still on the verge of collapse.) We’ll stay on top of it…

And now, a pathetic postscript to the saga of the Twitter Files.

As you might have heard, Elon Musk is doffing his hat as CEO of Twitter — handing off duties to one Linda Yaccarino.

Yaccarino’s most recent gig was NBCUniversal’s head of advertising. But that’s not what jumps out when you look at her LinkedIn page. Get a load of these highlights spotted by alert Twitter users…


Anyone who still believed that Musk was some sort of free-speech savior, or a threat to the Establishment, should be disabused of that notion now. But then, it should have been obvious to all a month ago.

If America blows up TSMC,” reads the subject line of the first entry in today’s mailbag.

We got a handful of hot takes to the musings of U.S. officials about blowing up Taiwan’s semiconductor factories if China invades Taiwan — something even Taiwan’s own defense minister objects to.

“We might call this misadventure Nord Stream Redux. Damn the consequences. Cue Britney Spears – Oops! I Did It Again.”

“Dear Taiwan,” says a reader with tongue firmly in cheek, “we deeply appreciate your dissent on our politicians’ plans to blow up your semiconductor plants to prevent China from controlling. Really, we do!

“Please refer to our handling of the Nord Stream pipeline.

“All the best, your bumbling idiots in D.C. (District of Comedy).”

One more: “So we send billions of dollars in military aid to Taiwan and we can’t get them to agree to blow up TSMC if they are invaded.

“We are either incompetent or stupid or both, or someone is lying.”

“The trouble with Rickards’ gold revaluation trick,” writes a reader of our Omega Wealth Circle, “is that half a trillion dollars will only see the USG through to maybe September or so, meaning that all the current debate would pick up again in July and August.

“Of course, if it were revalued to $10,000 per ounce or so, then we’d probably make it to this time next year.

“And of course, one likely consequence of such a move would be a renewed cry for an audit of said gold holdings. Does the U.S. really have the gold it claims to have? A lot of us are suspicious of all these ‘trust us’ assurances.”

“There needs to be some kind of exposure of the book industry in general,” says our final correspondent after a mystery memoir — title and author yet to be revealed — raced to the top of the Amazon charts.

“I think book deals are a way to launder influence money away from the prying eyes of the IRS and political influencing disclosure rules.”

The 5: Hmmm…

Have a good weekend,

Dave Gonigam




Dave Gonigam
The 5 Min. Forecast

Dave Gonigam

Dave Gonigam

Dave Gonigam has been managing editor of The 5 Min. Forecast since September 2010. Before joining the research and writing team at Agora Financial in 2007, he worked for 20 years as an Emmy award-winning television news producer.

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