A month has passed and the passions around the banks have subsided a little,
but the problems have not gone away. The high key rate and hints of its further growth make the outflow of deposits from banks increasing and it is not clear how this can be fixed. An interesting article in
Bloomberg about this.
It's the reporting of earnings week in the United States, and First Republic Bank reported that they saw $100 billion in deposits fall this year. Other banks might have the same reports. I believe we might see another drama from the legacy financial sector soon. Plus if the Federal Reserve hasn't cut rates yet, it definitely shows that they are not anticipating something to break. It's when Jerome Powell starts cutting rates that he's desperate to pump more liquidity into the system because something is about to break. BUT it will always be too late.
This was the result of having higher interest rates, people kept putting their money into banks to make more from the interest rate that is much higher these days and the reality is that not many banks have the money to actually provide that much return.
This is the problem, now back to solution and how we can figure this out; simply just drop the rates and people will take their money out. If you keep doing this then we are going to end up with people who will take their money out of the banks and the banks will do much better, they will not have to pay a lot, and even if they do not take their money out, at least the interest banks needs to pay will be lower. So in order to save the banks, FED needs to declare at least 0.5 lower rates to make it work.
