Fmr. US Treasury official: Five US banks may collapse, lose twice world GDP

A former US Treasury official has warned that the American banking system is "not safe" and the collapse of the five largest US banks can incur losses twice as much as the world's Gross Domestic Product (GDP).

Former US Assistant Treasury Secretary Paul Craig Roberts said on Monday that despite US President Joe Biden’s recent statement about the safety of bank deposits after the collapse of two major banks, the banking system in the US is not capable of covering the risks associated with banks' collapse.

“The banking system is not safe, because the 5 largest US banks have risk exposure that is two times world GDP,” Roberts was quoted as saying. “There is no possibility that the banks have the capital to cover this risk.”

On Friday, US regulators closed the Silicon Valley Bank (SVB) after depositors hurried to withdraw their funds all at once. This marks the largest bank failure since Washington Mutual at the height of the 2008 financial crisis.

However, the banking crisis continued to unfold swiftly as on Sunday the New York-based Signature Bank also failed subsequently. 

Roberts explained that SVB’s failure is related to a fall in the bank’s bond portfolio value and Signature Bank’s closing was led by reduced crypto-currency prices.

“[SVB] failed because the Federal Reserve’s higher interest rates reduced the value of the bank’s bond portfolio. Seeing insolvency, depositors withdrew their deposits, causing the failure,” he said. “The other failed bank resulted from declines in cryptocurrency prices.”

Roberts also cautioned that due to the “globalist interconnections,” the US problem could “spread abroad.”

Great Depression II: Collapse of banks exposes chinks in US financial system

Silicon Valley Bank made it to Forbes’ annual list of America’s best banks just weeks before federal regulators stepped in to shut it down as it became the first major American bank to fail since the 2018 financial crisis.

“I think the Fed [Federal Reserve] will have to discontinue its high-interest rate policy as it is undermining balance sheets in the financial sector, thus raising the specter of widespread failure or of so much new money committed to rescuing operations as to threaten the value of the US dollar,” he added.

According to CNBC San Francisco’s First Republic shares lost 61.8% on Monday after declining 33% last week. PacWest Bancorp dropped 45%, and Western Alliance Bancorp lost more than 47% as regional bank stocks fell sharply.

Zions Bancorporation shed about 26%, while KeyCorp fell 27%. Other financial firms were also under pressure, as Bank of America slipped 5.8%, while Charles Schwab tumbled more than 11%.

SVB collapse plagues Israeli startups

Israeli venture capital funds held emergency discussions on Saturday to formulate measures to help Israeli startups who cannot withdraw money from their accounts as the ripples of the US banking crisis extend far and wide. 

Israeli startups are facing problems with the payment of salaries to their employees in the US, as it requires an active US bank account.

According to a source close to the Federal Deposit Insurance Corporation (FDIC), the regulator has already succeeded in realizing half of SVB’s assets.

Therefore, account holders had to receive their insured deposits, up to $250,000, on Monday, and will also receive at least half of their total deposits in the bank later this week.

An especially high rate of 96% of deposits at the bank is believed to be higher than $250,000 and therefore not insured.

The insurance ceiling is determined according to the average deposit amount in commercial banks that mainly serve households. Unlike them, in SVB the vast majority of accounts belong to high-tech companies and venture capital funds.

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