This is the world the regulators live in. Understand the brain drain that happened in D.C. Everybody who looked like us, a little bit older, a little bit grayer, they’re gone. It’s a bunch of young, 30, 40 year olds who have never lived through a downturn before. They’re going to go through this for the first time and they are not going to know how to handle it. They don’t have the seasoning that some of those old, seasoned examiners have.
Musso said April 30 during the Bank Holding Company Association spring seminar.
Musso’s presentation came only four days after Philadelphia-based Republic First Bank became the first bank to fail in 2024. The bank was shut down by Pennsylvania’s bank regulator, with the FDIC seizing control of the institution. An analysis of 4,000 U.S. banks by consulting firm Klaros Group found 282 face the combined threat of CRE loans and potential losses from higher interest rates.
Musso said there are 52 troubled banks in the United States and $66 billion in troubled bank assets. Of those, up to eight are being resolved. Musso said the troubled banks were identified by an internal FinPro platform relying on public data to run reports on any bank in the United States. He claimed the platform identifies problems faced by a bank along with how regulators will respond to the issue. Using artificial intelligence, FinPro then weighs each problem on a 0-100 scale, with 100 signifying a “death knell,” Musso said. He expects to introduce a community bank shared risk pool in the next two months allowing banks to pool their money to buy the uninsured deposits of any failed bank.
Mixing humor with his serious broader message during the hourlong address, Musso said banks are well-positioned for an economic downturn and will have a strong second half of the year. Banks have record levels of capital, with Tier 1 ratios averaging more than 10 percent and risk-based capital ratio more than 14 percent. “We can manage that,” he said of the potential downturn. “We have more capital than God. Even if there is an economic disturbance, we can withstand that.”
Musso said regulators should account for the need of banks to instantly access funding sources to account for last spring’s failures of Silicon Valley Bank, Signature Bank and First Republic Bank, all of which were attributed to rapid deposit runs. Musso said on-balance sheet liquidity is no longer a significant consideration as banks instead prioritize where they can borrow, whether through the Federal Home Loan Bank system or Federal Reserve.
“What matters is, what you have in your Fed master account and whether you can get into that Fed master account quickly,” he added.
AUTHOR COMMENTARY
From my perspective there seems to be some truth mixed with some watered down hopium.
On the one hand, bank failures are imminent; I have been saying this for some time now, and you are going to see more of them tumble this Summer. Will a raft of them collapse in a just a few weeks, as Musso is suggesting? We’ll see. Quite frankly the situation, I believe, is much downplayed, as only recently has the mainstream media finally starting to warn in a significant way that there is a serious problem with the banks, commercial real estate and office building vacancies. There will be WAY more bank failures than what Musso is saying, count on it. It may not happen all at once this year, but clearly a consolidation of the system is taking place.
The major institutions, though they have hefty exposure as well, are better suited to take the hit. However, one or two of them will be sacrificed in the wake of this. I have heard murmermings that Bank of America is on the chopping block, so we’ll see what happens.
Proverbs 22:7 The rich ruleth over the poor, and the borrower is servant to the lender.
Either way, limit your exposure to the banks. Keep the money under your mattress or wherever; keep only what you need there to keep a balance and pay bills.
[7] Who goeth a warfare any time at his own charges? who planteth a vineyard, and eateth not of the fruit thereof? or who feedeth a flock, and eateth not of the milk of the flock? [8] Say I these things as a man? or saith not the law the same also? [9] For it is written in the law of Moses, Thou shalt not muzzle the mouth of the ox that treadeth out the corn. Doth God take care for oxen? [10] Or saith he it altogether for our sakes? For our sakes, no doubt, this is written: that he that ploweth should plow in hope; and that he that thresheth in hope should be partaker of his hope. (1 Corinthians 9:7-10).
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“We have more capital than God. Even if there is an economic disturbance, we can withstand that.”
Excuse me? Looks like you have a smack-down coming. Just sayin’ . . .
I meant to comment on that, but I think his hubris speaks for itself.
Proverbs 18:11 The rich man’s wealth is his strong city, and as an high wall in his own conceit.
Yeah, I have something to say about that as well Matthew 12:36 But I say unto you, That every idle word that men shall speak, they shall give account thereof in the day of judgment. KJV that man’s judgment is coming soon.