US Banking Crisis Goes from Bad to Worse
News_Letter / Credit Crisis 2008 Jul 28, 2008 - 03:50 PM GMTBy: NewsLetter
15th July 08
The last four days have seen the already distressed US banking sector lurch towards the precipice of a full blown financial system meltdown. Banks that have already seen stock price falls of as much as 90% were again hit today with many falling a further 5% to 10% on fears that a series of cascading bank failures were about to be triggered following the collapse of Indymac bank on Friday, as a run on the bank had panicking depositors withdrew funds at the rate of a billion a day.
US Banking Crisis Goes from Bad to Worse
The last four days have seen the already distressed US banking sector lurch towards the precipice of a full blown financial system meltdown. Banks that have already seen stock price falls of as much as 90% were again hit today with many falling a further 5% to 10% on fears that a series of cascading bank failures were about to be triggered following the collapse of Indymac bank on Friday, as a run on the bank had panicking depositors withdrew funds at the rate of a billion a day. The Federal regulators stepped in to seize the assets and guarantee 100% of the first $100k of depositors money. Meanwhile at the same time another far bigger crisis was unfolding as Freddie Mac and Fannie Mae that insure or manage more than half of US mortgages were also on the brink of collapse. US Treasury Secretary Hank Paulson stepped in to try and reassure the market that the banks were able to meet to day to day financing operations. This 'ms-information' was followed on Sunday by a U-turn by the Federal Reserve and Treasury Department by making unlimited funds available to both critical institutions so as to prevent their collapse, even going so far as the government seeking to buy the banks stock so as to put a floor under the share prices. The problem the US banking system now faces is that the failure of Indymac, and bailout of Fannie Mae and Freddie Mac to prevent a far worse collapse are not an isolated instance but systemic of the whole banking system. The New York Times estimates that as many as 150 banks could go bust and thus requiring the Fed to step in to seize assets during the next 12 month with many of the remaining banks cutting back on their branch networks. However this estimate may still be just the tip of the banking crisis iceberg as the Savings and Loans crisis of the early 1990's witnessed the number of bank failures explode that eventually saw more than 1000 financial institutions go bust, which given that today the US is experiencing the worst housing market crisis since the Great Depression may be in for an even worse fate. The FDIC currently has some $53 billion of funds available to pay depositors of defaulting banks of which upto $8 billion has now been eaten up by Indymac, which means should anywhere near the number of anticipated banks fail then the US Tax payer will be forced to step in to the tune of several hundreds of billions of dollars if not for over a trillion dollars. There also exists this risks of an across the board loss of confidence in the banking system culminating a series panic runs on US banks accompanied by a collapsing US Dollar as the US national debt levels explode as the liabilities of these failing banks are taken over by the government and depositors / investors seek shelter in more secure currencies and assets such as the precious metals.The question now being raised is who will be next on the list to go bust. ? The crisis in the US banking sector echoes around the world as many banks have seen capital bases eroded by well over 50% due to exposure to toxic US mortgage backed securities that continue to default in ever increasing numbers which has resulted in the credit freeze as increasingly cash starved banks fear lending money to one another due to the increased risk of default. This weeks timely special report is 'How Safe is Your Bank' In this free report made available to our readership by Elliott Wave International, you'll discover …
For more on the banking crisis subscribe to our Free Newsletter. Your analyst ensuring savings exposure with each bank is limited to the guaranteed insurance limits. Nadeem Walayat,
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By: Nadeem_Walayat One of America 's biggest savings and loans mortgage banks, Indymac goes bust as regulators stepped in to seize the banks assets on Friday. The bank saw panicking savers withdraw more then $1.3 billion in deposits in one day alone as the bank teetered on the brink of collapse under the weight of mortgage defaults as result of the meltdown in the US housing market in similar style to Britains Northern Rock bank run during September 2007.
By: John_Mauldin It seems that with each passing month the estimates for losses in the international banking system keep rising. This time last summer the largest estimates (from credible sources), if memory serves me correct, were around $400 billion, give or take a few months. By the end of the year it was in the neighborhood of twice that. Then last quarter we saw estimates approaching $1 trillion. Last week, the number being broached was $1.6 trillion, by Bridgewater Associates, one of the top, and more credible, analytical firms in the world. For more indepth analysis on the financial markets make sure to visit the Market Oracle on a regular basis.
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