The Great Banking Crisis: Is the Industry Headed for an Apocalypse?

Surprisingly, CNN has accurately summarized the current state of the banking crisis from a conservative perspective. The Federal Reserve, the Treasury, and the banks have all claimed that the banks are fine. However, Wall Street has started a panic, and several regional banks are suffering significant losses.

PacWest released a statement meant to calm investors, but instead, it sparked a massive wave of panic, and the stock plummeted more than 50%. Western Alliance, despite pushing back against a report that indicated a sale of the bank was being explored, has still suffered significant losses. First Horizon's merger with Toronto-Dominion Bank fell through, leading to a 37% decline in stock value. Moreover, a recent study showed that 186 more banks are at risk of failure, even if only half of their uninsured depositors withdraw their funds.

The situation is terrible, and with the Federal Reserve deciding to raise interest rates again, it is bound to get worse. Depositors continue to withdraw money from the system, while banks' bonds continue to lose value, and loans are turning bad.

At this stage, very few banks are safe, and the banking crisis is only beginning. Bill Ackman warned that the entire regional banking system is at risk. Uninsured depositors' withdrawal from Silicon Valley Bank and Signature Bank in March has woken up others.

The rapid rise in rates has impaired assets and drained deposits, and zeroing out shareholders and bondholders has massively increased the banks' cost of capital. Ackman criticized the FDIC for failing to update and expand its insurance regime, which has only worsened the situation.

Banking is a confidence game, and a lot of people will still pull their money out, even if all deposits in the system are fully guaranteed. Therefore, it is safe to say that the banking crisis is far from over.