Federal Regulators Prepare for Financial Crisis – Invest in Gold and Precious Metals Today!
Last Thursday, Bloomberg reported that federal regulators are preparing a proposal to ensure US banks utilize the Federal Reserve’s discount window in preparation for potential bank crises. The objective, as highlighted by Katanga Johnson, is to eliminate any hesitation associated with accessing this crucial financial resource. This move follows the aftermath of last year’s failures of several significant regional banks, which underscored the need for proactive measures.
Federal Reserve’s actions during the 2007
This new policy bears resemblance to the Federal Reserve’s actions during the 2007 financial crisis when they encouraged large banks to access the discount window, facilitating access to loans directly from the Federal Reserve. Such measures are taken to prevent a scenario where the public’s perception of a bank’s need for Fed support prompts depositors to withdraw their funds. The Fed’s primary goal is to shield at-risk banks and mitigate the inherent risks in our modern fractional reserve banking system.
However, while this may appear to stabilize the situation, it raises concerns about moral hazard and leaves customers more exposed. It aims to eliminate a signal of institutional risk.
The failure of Silicon Valley Bank last year
Regulators’ concerns about the fragility of banks are well-founded. The Fed’s low-interest rate environment pushed financial institutions to invest in US treasuries with very low yields. As inflationary pressures increased interest rates, the market value of these bonds declined, ultimately contributing to the failure of Silicon Valley Bank last year.
Furthermore, the state of the commercial real estate sector poses additional stress for regional banks, which are responsible for 80 percent of such mortgages. In the past, investors saw commercial real estate as a safe haven for reliable returns. Unfortunately, shifting consumer behavior, such as increased online shopping, remote work, and shared office spaces, has reduced the demand for traditional brick-and-mortar locations. The COVID-19 lockdowns only accelerated these trends.
Real estate debt is now considered one of the riskiest financial
As a result, commercial real estate debt is now considered one of the riskiest financial assets, sitting prominently on the balance sheets of regional banks nationwide.
These stress factors not only influenced the recent policy by federal regulators but also the depth of their response to last year’s bank failures. In response to the Silicon Valley Bank failure, the Fed introduced the Bank Term Funding Program, allowing banks and credit unions to borrow using US Treasuries and other assets as collateral. This emergency measure indicated concerns about the vulnerability of other banks. The Fed intends to let this program expire in March, encouraging banks to rely more on the discount window.
Despite these actions reflecting genuine concerns about the health of US banks, these institutions have consistently projected an optimistic outlook on the economy in public statements.
Fed Chairman Jerome Powell and Treasury Secretary Janet Yellen have repeatedly described the US economy as “robust” in recent months, a view not shared by the majority of Americans. Powell even declared victory over inflation in December, despite the Fed’s preferred measures remaining well above their 2 percent target, contradicting his previous stance on the need to aggressively address inflation.
The Fed has consistently prioritized bailing out the financial system
The influence of politics cannot be ignored in these positive economic statements, especially during a presidential election year. Another motive behind projecting economic strength is to equip the Federal Reserve with a flexible policy arsenal. While Fed officials have framed their projections of rate cuts in 2024 as indicative of the growing strength of the US economy, the reality is that the Fed seeks the option to lower rates in response to financial distress. The Fed has consistently prioritized bailing out the financial system over exposing Americans to the consequences of inflation.
As the 2024 election unfolds, Americans will undoubtedly encounter a barrage of political falsehoods and empty promises, not only from politicians but also from government agencies and the central bank. Amidst this, it’s wise to consider diversifying your investments by purchasing gold and precious metals to safeguard your financial future. Don’t wait – act now!
