The banking crisis is not yet over 🏦; If Hindenburg doesn’t kill you - it makes you stronger: Block is back 📈; Binance is rapidly losing its market share 😳
FinTech is Eating the World, 5 April
Hey Everyone,
Good day! Today’s issue is super interesting as we’re going to look at the banking crisis which is not yet over (things to watch & worry about), Block which bounces back after the Hindenburg report (& why I’m super bullish and what bothers me), and Binance which is rapidly losing its market share (what’s happening?). Let’s jump straight into the fascinating stuff 🌶
The banking crisis is not yet over 🏦
The current crisis is not yet over, and even when it is behind us, there will be repercussions from it for years to come.
These were the words JPMorgan Chase JPM 0.00%↑ CEO Jamie Dimon said in his annual letter to shareholders on Tuesday.
He’s right.
The exodus of cash 💸 According to the Financial Times, the largest US regional banks began this year with less cash on hand than at any time since the 2008 financial crisis, leaving them ill-prepared for a rush of deposit withdrawals that led to the collapse of Silicon Valley Bank and Signature Bank.
As they adjusted to rising interest rates, the 30 banks with assets between $50 billion and $250 billion cut the percentage of their assets held in cash to an average of 7% at the start of 2023, from 13% a year before, as per Federal Deposit Insurance Corporation data.
That was less than half the cash held by the nation’s largest and more strictly regulated lenders, such as Citigroup and JPMorgan Chase, which on average had 15% of their assets in cash.
And that’s not it.
The exodus of deposits 💸 American Banks lost nearly $400 billion in deposits in March marking the biggest-ever monthly loss in bank deposits in US history 😳
So what happened?
Following the collapse of Silicon Valley Bank (and later - Signature), people have reevaluated where they store their cash and have therefore moved it into things like bonds, money market accounts, etc. rather than keeping it in checking or savings accounts that basically pay 0% interest.
So $400B wasn't really "lost". It was parked elsewhere.
But here comes the interesting part.
✈️ THE TAKEAWAY
A problem in the making? 🤔 This massive exodus might become a huge problem if and when the Money Supply continues to contract. And we're seeing this already to an extent. Having less cash in the form of deposits, banks will continue tightening their lending standards. On top of that, if the Fed continues to do quantitative tightening (= reducing its balance sheet), that can increase the odds of more bank runs. And more bank runs would lead to a full-blown banking crisis that can translate into a global recession. So buckle up, 2023 is getting wild.