If you don't care about a lot of American banks' stability or solvency, you should be.
As is typical for any capital markets or banking regulatory body, or the FDIC, the agency that is supposed to 'insure' or backstop trillions of dollars of customers' bank deposits, the mixed results appear in the Q2 profile were sugarcoated wherever possible with upbeat assessments about improving metrics. But there's just not enough lip color in the FDIC's boudoir to make the ugly banking metrics look pretty.
It's really ugly some glossed-over metrics really are, why depositors and investors should be worried, and what to do about it.
What did Fed Chairman Jerome Powell say about inflation in the period from Q1 to Q3 2021? It didn't take long - at the end of Q4 2021, in fact - for Chairman Powell to acknowledge that 'transitory' was not likely the trajectory of inflation. The same is true for what ails America's banks. If inflation were transitory, the Fed would have to raise the fed funds rate from zero to 5.5%, and banks would be in great shape.
To maintain inflation as it is embedded in the economy, the Fed is going to have to maintain a higher rate or, at a minimum, keep it 'higher for longer'. That's worrisome, because higher rates embed difficult-to-overcome, sometimes impossible, structural problems into banks after years of artificially manipulated low rates.
When interest rates were low, having been manipulated lower for a long period, and finally brushing up against the 'zero-bound' in the U.S. - while they were actually negative in Europe and other areas due to the plague of Covid-19 - banks flushed with deposits from customers and corporations who had no use for their money for a considerable time.
Banks have converted those trillions of dollars into 'assets' by buying lower and lower-yielding U.S. Treasury securities and mortgage-backed securities. The banks opted for extra yield, as the yields were so low, by leveraging their holdings and buying longer-dated bonds with incrementally more yield.
With inflation turning structural and rates going up consistently, banks now face a worrying new challenge: 'transitory' inflation.
Shah Gilani has a wealth of wealth that surpasses any other. He started his own hedge fund in 1982 from his seat on the Chicago Board of Options Exchange. When options on the Standard & Poor's 100 began trading on March 11, 1983, Shah worked in 'the pit' as a market maker. He laid the foundation for what would later become the VIX - now one of the most widely used indicators globally. After leaving Chicago to lead the Futures and options division of Lloyd's TSB, Shah moved over to Roosevelt & Cross Inc., an old-line New York boutique firm. He grew up in a packaged fixed-income trading desk and established that company's 'listed' and OTC trading desks. In 1999, Shah founded a second hedge fund, which he ran until 2003. Shah's vast network of contacts includes the biggest players on Wall Street and in international finance. These contacts give him the real story - when others only get what the investment banks want them to see.