Are US Banks Headed Off A Cliff?
November 22, 2011, Submitted by: Ken Tweet
The nation’s 2nd largest lender, Bank of America, has been warned by US regulators that the company could face a ‘public enforcement action’ if the bank doesn’t take immediate steps to ‘strengthen the bank’, a statement which apparently rattled the bank’s directors, and should rattle their depositors who have a pulse.
Bank of America’s stock price (BAC), which was once above $50, is now barely above $5 and has lost 58% of its value this year alone.
It is unclear when regulators will decide whether more severe measures are necessary.
Since mid-2009, Bank of America has appointed eight new directors and made a number of internal changes ranging from how it classified credit to risk and liquidity-management controls.
Regulators are shortening the leash on the nation’s biggest banks as they try to prevent future blowups. Bank of America shares have tumbled 58% this year—the biggest decline among major U.S. banks.
Source: The Wall Street Journal>
Question: Would you stay invested in a company that has lost 90% of it’s market value? Do you still have your checking and savings there?
It’s not just Bank of America… the FED is set to test six big U.S. banks for ‘Euro stress’. Bank of America, Citigroup, Goldman Sachs, JPMorgan Chase, Morgan Stanley and Wells Fargo.
The U.S. Federal Reserve plans to stress test six large U.S. banks against a hypothetical market shock, including a deterioration of the European debt crisis
“They are clearly worried about the issue of Europe,”
The Fed said its global market shock test for those banks will be generally based on price and rate movements that occurred in the second half of 2008, and also on “potential sharp market price movements in European sovereign and financial sectors.”
Source: Reuters
It doesn’t end there… according to a Bloomberg report, the Federal Reserve just told the 31 largest U.S. banks to test their loan portfolios and trading books against a deep recession and a European market shock to ensure they have enough capital to withstand losses.
Do you get the feeling that the FED is getting nervous? (Rightfully so, i’d say…)
Where’s your money at? Perhaps it’s time to check the strength of your bank, or switch to a credit union.
Here is a website where you can check your bank or credit union rating. Bankrate.com
Most everything is interconnected these days. If Europe implodes (say, even if just Italy or Spain implodes), so will a very many financial institutions, like dominoes. These entities are so leveraged, that if even a fraction of their loans are called in / default, they will go belly up. So, check your bank rating to see if they have sufficiently strong assets to survive economic Armageddon, before it is too late for you…
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so… I’m in the middle of switching from BoA to a credit union. I’ve already transferred my savings there but have yet to transfer my direct deposit paycheck there. If… say… worst case scenario happened tomorrow… what do you think I would be looking at for my basic checking account? It’s a Wonderful Life type run on the bank? wave bye bye? would I even be able to transfer my direct deposit after?
thx!
You and many others have switched to credit unions during the past month. Sounds like solid reasoning. So, a worst-case-scenario, would be bank closure and non-access of any ATM money or digi-dollars either. I really do not know for sure how long it would take the FDIC to straighten out the mess or to distribute insured money, but it probably wouldn’t be terribly fast. Plus, I’ve read that the FDIC insured fund could not handle major collapses (but I would have to dig up data to verify how much).
A worst case scenario would certainly be a horrible mess, and I sure hope it does not come to that. I also believe that it wouldn’t take too much of a bank run to wipe out these banks today – again, given their major leveraged positions. I’ll bet it only 10% of their depositors withdrew their money that they would be wiped out (my own spur-of-the-moment speculation). Today, with digital dollars, a bank run could happen very, very fast.
Bank of America Countrywide Merrill Lynch is already toast Ken. They “had” $1 trillion in deposits and there is an ongoing run on banks already. BOA just transferred $53T of risk from it’s Merrill unit to its main banking unit. This is backed up by deposits, and ultimately the FDIC (aka the taxpayer.) There is simply not enough money to solve a BOA failure which is why they are deemed a “systemically important institution (aka too big to fail.) It’s a disaster waiting to happen.
It’s not just BOA, it’s all US banks. What’s worse, it’s not just the US, It is GLOBAL. Just look at the German Bund auction today. A complete and utter disaster with the Bundesbank having to take down 35% of the offer to prevent an failure. It’s the worst since the Euro was introduced. Contagion has spread to the core economies. Dexia is renegotiating their bailout which will crush France’s AAA rating. CDS spreads are blowing out all over Europe. Rose into three digits today. This is horrible. Greek 2Y at 121.5% ??? It’s like a horror movie. Slow motion train wreck.
Germany will have to withdraw from the Eurozone, which they won’t, or allow the ECB to monetize debt (aka print Euros) which is frightening for Germany because with money printing on that scale (it’s around 30T that’s needed) brinks the very real risk of hyperinflation. German’s have a very real fear of hyperinflation (as they well should). Wiemar Germany is not far from their minds). It’s another disaster in the works.
This all, (and many other reasons) makes a compelling case to own gold. Gold is THE ONLY thing that will hold value in hyperinflation. As currency can be printed in infinite amounts, the dollar price of gold is undefined. Divide by 0.
It’s either own gold, or starve. The choice really is that stark.
Travis, I agree 100% with your comment. I have been a gold investor for many years, and know that in the end, it will be one of the only ‘things’ to make it through to the other side of this mess, intact.
The Europeans tried to emulate the US ponzi way of banking through debt. Without a central government to bind the central banks and not being the world reserve currency, this system was born to fail. Now they attempt to join the countries by breaking them fiscally and installing their own bankers as heads of state. The Eeeewwwuuuu, as I like to call it, is going down but not without the US and FED meddling first. Because just like the IMF is getting a piece of the Greek and Italian action, the US will want a piece of the EEeeewwwuuuuu action. It’s a greedy banker thing where they want all of theirs and everyone else’s too.
Can anyone say LONG TERM BANK HOLIDAY? I agree with Ken on a bank run. Just try to imagine this with many people siphoning out their accounts and demanding to be paid in only cash money. The World Almanac says there is ONLY about 900 billion dollars in circulation in cash money available and probably banks would at best have maybe 500 billion ready in cash money. That would be ONLY about $1600 per person in the U.S. Banks would probably limit the amount of cash money you could take out. This would really cause mass panic. ATM’s don’t work, you could maybe only get a couple hundred dollars at a time, once a week, what a mess!
Then the government would start printing up more money immediately and further drive the dollar down. Can anyone say the comeback of the $500, $1000, and $5000 dollar bills. God, would dope dealers and organized crime love this. Other countries have done this when there has been bank runs for cash money.
It might be wise as the world decays to take out some cash money out of your accounts and keep it in a safe or somewhere safe and get ready when cash could be the ONLY way of purchasing anything, other then pieces of precious metals or valuable barter items. I know that merchants that have supplies are probably not going to trust a credit card, check, debit cards, etc., cash might be the only means of getting what you need, other than becoming a crook and taking it. Even cash money may not do it, but it could be the best bet other than weapons, ammunition, certain food, alcohol, cigarettes, food, fuel, whatever you can trade for that someone wants and needs.
I tell you, each day you can just sense that something is coming, and their is seldom any good positive news anymore about your economic well being anymore. I sure would not trust anything that has to do with a piece of plastic or phantom online funds in even a moderate crisis situation for the country. Ken, good article, I just hope people will take this seriously.
i disagree that printing of physical currency would cause inflation. printing of actual currency could not occur fast enough to tip the balance of physical to digital currency. the fed could make adjustments to its balance sheet to make up any difference by reducing lending in very small amounts or by buying fewer primary dealer bonds.
you’re right, Sam, it’s the ‘digi-dollars’ that would be (could be) instantly created that would be the culprit. Today’s society runs on digital dollars. I’ll bet that it won’t be long and cash will be ‘out’.
Make no mistake, today in at least two EU countries printing presses are printing their new state currencies. The U.S. is right behind them. I would expect a bank holiday on a long weekend after Christmas (New years maybe). New rules limiting how much cash you can withdraw in a month. Following that would be the new currency valued at 1/10th today’s money. You would be allowed to convert some of the money not held in bank accounts but probably with limits of say… no more then $1000. More money then that would imply that you were hoarding and are part of the problem. Could it happen?? Absolutely. Will it? Sooner or later but no one can say when.
Digital dollars is frightening beyond words. In a crisis cash will be the only form of currency accepted, especially if the digital world goes down for all sorts of reasons. Phantom money only works when the computer world is up and running. The reason I could see money being printed in higher increments is because the country, thankfully, still has to run on cash money. This is what has happened in other countries, just print higher denominations. God help all of us if digi-dollars becomes the norm, we are all lost then, the NWO is then in TOTAL control of everything.
Cash will be linked to digi dollars which local traders will not trust. I would be searching for silver dollars or those pre 1960′s coins which contain real precious metals to be used as a backstop.
For those who have a variety of coins and would like to know their silver ‘melt’ value, this is a good resource for all your coins:
http://www.coinflation.com/silver_coin_values.html
Some of us at work have stopped our 401k contributions and some, taken the cash out too. In the coming months you will need as much cash as you can get. No matter which scenario plays out above, the value of the dollar is heading much lower. Precious metals are being hoarded by countries around the globe to back their future currencies as they have learned their lesson by emulating the US/EU and falling into the same trap as us. The west will soon become the poster child as an example NOT to follow in the world of finances.
I’ve posted this before but just in case anyone has any love left for the FED, then go to this site and get a history lesson. http://mykindred.com/cloud/TX/Documents/dollar/
Take notice to the end of WWII when the US was THE only engine of growth on the planet and what does the FED do? They begin their controlled descent of our currency. Also notice that nothing stops their destruction of our currency despite any events during this time. Prior to the FED’s infestation of our country, our economy was strong and reacted normally to historic events. But once they got their meat hooks into our country, it was all down hill from there. Have and look and decide for yourself.