Which Bank Will Fail Next?
Perhaps a better way to answer this question is to list which banks won’t fail because Treasury, the Fed and the FDIC won’t allow them to. There are only four:
J.P. Morgan (JPM): Many consider JPM to be an extension of the Federal Government. JPM is not above doing the Fed’s dirty work, including suppressing the price of gold (see Former J.P. Morgan Precious Metals Traders Sentenced to Prison). With $3.9 trillion of Assets, JPM is America’s largest bank.
Bank of America (BAC): Bank of America is my preferred bank to use as a proxy for the health of the U.S. consumer. At present, the consumer is not healthy. Importantly, Bank of America carries the largest amount of unrealized losses on its balance sheet of any of the banks. If these losses were required to be marked-to-market, I believe they would be above December 2023 levels and close to September 30, 2023 levels as today’s yields are similar to September’s yields before Powell talked yields down on December 13th. I believe that the Fed will ultimately lower interest rates to allow Bank of America to reinflate its bond portfolio, thereby narrowing its unrealized losses. BAC had $3.2 trillion of assets as of 12/31/2023, making it the second largest U.S. bank.
Citigroup (C): Citi is the third largest commercial bank with assets of $2.4 trillion as of 12/31/2023. Citi is restructuring operations. Citi seems to have had operating issues since the day Jamie Dimon left in November 1998.
Wells Fargo (WFC): For the past several years WFC has been led by former JPM senior executive and former VISA CEO Charlie Scharf. WFC is the smallest of the four horsemen as measured by assets which totaled $1.9 trillion as of 12/31/2023.
All other banks are fair game. With only 5 bank failures in 2023, the total assets associated with those failures ($549 billion), surpassed 2008’s total. I have no doubt that if the Fed, Treasury and FDIC were to step aside in 2024 and allow the chips to fall where they may, that we would have more bank failures and more asset destruction than we suffered in 2023. I say this because as unrealized losses mount, banks naturally pull back on credit, which of course slows the economy.
Since 2008, the Fed and the Federal Government seem incapable of allowing the economy to run its natural course and feel compelled to intervene with massive bailouts such as the BTFP, without which the economy would have suffered a much needed bloodletting in March 2023. This “kick the can down the road” strategy is a stupid one as it relies 100% on the issuance of more Treasury debt. Every time the U.S. issues debt, it erodes the value of the Dollar. This is why for example the price of a new car increased by 60% over the past decade. Spend-heavy politicians (including the Fed) are knowingly and willingly destroying the value of the Dollar and therefore are destroying the country.
