Fed's inflation policy has created a crisis in the financial sector

The Federal Reserve's strategy to cool stubborn inflationary pressures has not only elevated interest rates but has also created a crisis in the financial sector as bank loans diminish.

The Bank of America, Citigroup, JPMorgan Chase and Wells Fargo will each contribute $5 billion to the First Republic, Goldman Sachs and Morgan Stanley said they will deposit about 2.5 billion each, while Truist, PNC, U.S. Bancorp, State Street and Bank of New York Mellon hand over about $1 billion, respectively.

Eric Schiffer, CEO of the Patriarch Organization in Los Angeles, said in an interview with FOX Business that The Fed has a face-off against inflation and a fight to prevent a banking crash from hell. He continued that this guarantees a recession because bank loans are drying up like the desert, and the beast of inflation won't return to its cage. It sets up dangerous market pain and spontaneous combustion of stocks lower than anyone wants, if you add in lower future earnings not yet revealed. Even with interest rate cuts, historical data shows the market takes a hit when inflation is still at play, Schiffer said.

The month started with investors pulling $40 billion out of Silicon Valley Bank, and on March 10 the Federal Deposit Insurance Corporation FDIC said it seized control of SVB while the lender was shut down by California regulators.

The FDIC shut down Signature Bank on March 12, after regulators said keeping the bank open could threaten the stability of the entire financial system.

Both banks had a high ratio of uninsured deposits to fund their businesses.

Global inflation and the subsequent banking crisis had a significant impact on institutions around the world by March 15. Swiss authorities have a backstop to Credit Suisse after shares for the bank plummeted 30%. The Bank of Switzerland took over Credit Suisse five days later, despite receiving a $54 billion financial lifeline from the Swiss National Bank to bolster its liquidity.

On March 16, U.S. Treasury Secretary Janet Yellen and JPMorgan Chase CEO Jamie Dimon worked together on a plan to help the banking sector. On the same day, First Republic Bank received $30 billion in deposits from 11 of the largest U.S. banks as customers raced to withdraw deposits.

Schiffer said that the only way to strengthen the banking sector while the Fed manages inflation is to create short-term stop gaps to prevent future runs on the banks. He went on, saying that the Fed's current solution has worked but needs more depth to strengthen the banking sector. The Fed will capitulate on interest rates soon, or they will do severe economic destruction, but the byproduct of inflation won't die.