That being said, when we read this particular post from a most respected financial journalist concerning this key banking “element” first thing that comes to mind is what is the plan here?
The explosive interest rate hikes over a relatively short amount of time (11 times since 2020 with a 1500% aggregate raise in that time in $$ impacts) has crippled the balance sheets of many jumbo midsize and midsize banks holding this paper purchased when interest rates much lower decimating their resale value in a fire sale if required, and coupled with the described exodus of deposits is most disconcerting when taken in the context of their potential exposures to the cratering commercial real estate market.
The stark reality is the lion’s share of the mortgages of many Class A office properties in prime areas are held by this banking segment and in the next 16 months over a trillion and half dollars of leases , mortgages and loans are coming due. This in the midst of an unprecedented migration out of office occupancies as we speak due to the pandemic induced work from home behaviors created..
And if the so called soothsayers have any credibility the manufactured inevitability of ANOTHER pandemic seems more than likely which would again crush the office segment of the commercial real estate market and destroy any yield curve projections going forward for the bankers holding the paper to latch on to.
If you couple this with the migration of so called golden deposits (defined as non interest bearing static accounts) out of the banks into more flexible money market and other options for higher returns it forebodes a major pullback of bank lending to the crucial small business segment going forward. And was this always the plan in the interest rate adjustments made? You wonder.
Remember the elite and brilliant bankers at the top of the food chain have the luxury of looking at things in 5-10-20 and fifty year cycles so these moves reviewed today thru a short term lens may not make sense to most but to us are alarming. It suggests a major restricting of the economy by design over time.
Exacerbating this a recent Federal Reserve directive mandating a capital reserve expansion in the very banking segment (over 100 Billion + in reserves) that holds the most risk in the commercial real estate market signals the FEDERAL RESERVE is also keenly aware of the looming risks .
Food for thought eh?