When the Great Recession of 2008 occurred, Katrina Matthews was a law student and working part-time at a Southern California with a real estate firm. She noticed that people were beginning to fall behind on their mortgage payments, tenants’ monthly rental payments skyrocketed, home prices dropped drastically, and almost everyone’s financial lives were falling apart. She was approached by people desperate for help. “A good majority of them were still working people who couldn’t afford it anymore.” She added, “They were trying to get help, but the banks weren’t listening to them. Nobody cared.” She helped all those she could to get out of their mortgages. Sadly, many had to sell their homes at a loss. Nationally, about 10 million lost their homes and 9 million people lost their jobs. This story was reported by the LA Times. But it did not address the underlying causes of the problem.
There were unhappy endings for millions of Americans. As made clear in the movie, “The Big Short,” working people got stiffed, and irresponsible financial firms got bailed out.
We are in the third huge banking crisis in 37 years. The Savings and Loan Crisis began around 1989 and ended with 1043 of the 3234 S&Ls financially imploding and going out of business. During the Great Recession, between 2008 and 2015, more than 500 banks failed, according to Federal Deposit Insurance Corporation (FDIC) data. By 2012, over 46 million Americans were living in poverty.
Now, in 2023, we have the next banking blowup with 3 huge banks closing. The New York Times reported the estimated cost of the recent Silvergate Bank and Silicon Valley Bank failures was $175 billion. To keep First Republic Bank from failing, various large U.S. banks gave it $30 billion in deposits, JP Morgan Chase & Co. also provided $70 billion in financing but by May 2, JP Morgan Chase was permitted by the government to buy First Republic at a discount. A paper published by the Social Science Research Network cited economists who estimated 186 banks would fail if there was a 50% bank run on their deposits. On March 12th, 2023 William Issac, a former FDIC chairman, stated that the economy was in a similar situation to the 1980 and 1990 US financial crises and undoubtedly more banks would fail.
J. Paul Getty said, “If you owe the bank $100 that’s your problem. If you owe the bank $100 million, that’s the bank’s problem,” but these days it is the taxpayers’ problem.
At the end of this article you will find:
- How to locate your financial institution certificate number (and if they are FDIC or NCUA insured)
- How to find your bank or credit union safety rating through various quality rating services.
- What else people should do to protect their money.
So has the banking crisis ended?
Are we going to have a quick recovery?
Most likely not. Why? Here is a little back story.
The Federal Reserve System (the Fed) is the ultimate banking authority in the US. The Fed is the custodian of the reserve accounts (a portion of currency deposits) in commercial banks, it makes loans to those banks and determines the dollar supply.
When the Fed raises interest rates, banks have to pay more to borrow money. Then banks reduce the number of loans they make because most bank customers do not want to pay for loans at high-interest rates and the loan default rate increases when interest rates increase.
Unfortunately, many banks have large portfolios of low-interest investments in housing and government bonds. Those banks began losing money when the Fed significantly increased interest rates starting March 16, 2022. Since then the Fed has raised rates nine more times, with more likely to come.
Higher interest rates are applied with the hope of reducing inflation. Less available credit slows the economy, including the construction of new housing.
Yet eventually, economies recover, sometimes quickly. How is the US economy looking now?
Here’s a bit of insight to help answer that question. If investors can make more interest buying 1-year bonds, than they can for 10-year bonds, what would be the smart business decision? The investors would cut back on buying longer-term bonds and buy more 1 year bonds. Also, if the economic forecasts look bad, the risks are significantly higher in buying long-term bonds because the inflation rates may be much higher than expected in future years.
This is what is happening now to the Federal Reserve. Inventors are becoming very cautious about the future of the US economy and applying the above scenario to their purchases of Fed bonds.
The Yield Curve Predicted the Last 10 Recessions
One of the tools used by the banking industry, investment firms, and bond buyers is the “yield curve.”
Yield curves are used to predict changes in economic production and growth. The most commonly used yield curve compares long-term to short-term US Treasury debt instruments. These Treasury debts are sold to investors in maturity periods of 4-week to 52-week periods, from 1 to several-year periods, and from 10 to 30-year periods. The Treasury debt is offered by the Fed in the form of Treasury bills (4 weeks to 1 year), Treasury notes (2 to 10 years), and long-term Treasury bonds (20 or 30 years). Although all these debts have different names, they are all types of bonds.
These bonds are all guaranteed to be paid by the US Government.
The 10-year T-note is the most watched Treasury debt. Usually, 10-year notes are in greater demand among investors and historically have had a predictable return and increased the overall stability of investment portfolios. The 10-year T note is used by banks to calculate mortgage rates.
A yield curve helps measure bond investors’ feelings about risk. In a normal yield curve, bonds with longer maturity periods have a higher interest yield than shorter-term bonds do. An inverted yield curve has the risk reversed and shows short-term bond interest rate yields are higher than longer-term bond yields.
The inverted yield curve indicates that bond buyers think the future is more uncertain and financially risky. To them, it is better to invest in shorter-term bonds than tie up their money in longer-term bonds which might have lower future returns.
In May 2022, the Federal Reserve Bank of San Francisco, Economic Letter published a report which showed that inverted yield curves predicted all 10 recessions since 1955.
The Federal Government Now Spends 21% More Than It Receives in Taxes
As of May 9, 2023, the national debt was $31.4 trillion according to the US Treasury website. The Pew Research Center announced on Feb 14, 2023, that the US national debt is 121.2% of the US annual government revenue. 21.8% of the public debt, or $6.87 trillion is owned by various US government agencies. $7.4 trillion was owned by other nations as of January 2023 with Japan, China, and the United Kingdom topping the largest owners of Treasury foreign debt.
What does this mean? It means that unless the government dramatically cuts its expenses and/or dramatically increases its revenues (increases taxes) then the debt will continue to far exceed government revenue and the value of the US dollar will decline.
BRICs Are Replacing the US Dollar
In addition, Brazil, Russia, India, and China (the BRIC alliance), as well as a growing number of other nations, have agreed to trade in the Chinese Yuan as an international or reserve currency instead to the US dollar. When trillions of international payments switch over from US dollars to the Chinese Yuan, the demand for US dollars drops. This decreases the value of the US dollar compared to the Yuan and other international currencies. This will increase the cost of imported products into the United States.
All these factors and more have made investors less confident about the future of the US economy so they are being more careful.
The vast majority of US Treasury debt is in T Bills (see chart mid-page). When these short-term maturity bonds are paid out and investors buy the new T-Bills, the new higher interest rate will speed up the growth rate of the national debt.
Peter Lynch, the brilliant fund manager at Fidelity Investments, was convinced that poor regulation and lack of oversight on property debt was a key factor in the savings and loan crisis. This lack of oversight, careless deregulation, and risky or ignorant investment policies by financial institutions led to these crises. Yes, the Federal Reserve’s manipulation of the interest rate had a big impact on the Savings & Loan and Banking crises, but well-run banks were not damaged by these Fed policies. For example, during the Great Recession, JP Morgan Chase and Wells Fargo requested that they not be given bailout money, but they were forced to take the money the government was handing out to the mismanaged banks.
Wells Fargo paid back the government bailout money along with $1.44 billion in dividends. JP Morgan merged with Chase Manhattan Corp. which created the JPMorgan Chase Bank and repaid the bailout money to the government.
What Can People Do to Protect Their Cash?
What are consumers and businesses doing to protect their cash and perform financial transactions? Cryptocurrencies are still a tiny part of the world economy so they are not commonly used yet. Gold and precious metals are growing in popularity (banks are buying huge amounts of gold) but they need to be converted into cash for people to transact business. Certificates of Deposit and Treasury Bonds are safe but both of these tie up your cash for months or years. Keeping all your cash stashed under your bed or in an openly displayed home safe are an easy target for burglars. Bank and credit unions, for now at least, are the best options to store large amounts of cash and to facilitate fast transactions. In addition, the Federal government still provides $250,000 deposit insurance for FDIC banks and NCUA-regulated credit unions.
It’s recommended that people use at least two banks or credit unions with good ratings. If one appears like they are getting into trouble it will be easy to transfer your assets to the other one. Also if you need a line of credit, have it set up at both banks in case one bank fails or reduces the line of credit during hard times so you will have the other line of credit as backup.
Regularly check your bank rating because even if your bank or credit union is federally insured, you might not get access to your money for weeks or months if it fails. If the bank has to be bailed out or closed by the Fed, the Fed has $128 billion in FDIC insurance but that cannot cover all the $10 trillion in US banking deposits. If you cannot get FDIC insurance money promptly to cover your deposits you might lose your home and your car and default on other loans. In this situation, the government and banking system cannot and will not make you whole again.
Have ready cash stashed somewhere safe.
Review your bank, mortgage, and other financial statements regularly, not only to make sure you are managing your money well but also so that you can detect fraudulent transactions on your credit cards, with your bank accounts, with your home mortgage (to prevent title theft), etc. Immediately contact your financial institutions and credit reporting agencies if you uncover transactions you did not approve.
Use a quality VPN on your computer and phone. Keep your banking and financial passwords secure and inaccessible to hackers.
Is a US Digital Dollar Coming Soon?
Will the Biden Administration’s push for a US CBDC (a US digital dollar) succeed? If so, this would give the Federal government direct control over all CBDC transactions and unless prohibited by internal software coding, would permit the government to spy on any US bank account. A CBDC system would allow the federal government to target any person for political reasons like China does now to its citizens. It looks likely that the CBDC will happen, but that is a topic for a future article.
Here are the free and paid bank rating services you may want to use.
“In banking or finance, trust is the only thing you have to sell.” ― Patrick Dixon, futurist, and chairman of the trends forecasting company Global Change Ltd.
Veribanc has been in business since 1981 and takes no financial contributions or advertising from any government, business, or any other group. This made them reliable and not subject to being influenced by or giving favorable ratings to any bank or credit union. This is in contrast to major rating institutions that were compromised and that covered up problems before the 2008 Great Recession and apparently now as well with the current banking crisis.
You can order Veribanc reports on any of the 5000+ FDIC-rated banks and 2980 NCUA credit unions so you can see how safe your money is. Green (safe), Yellow (not in apparent danger), and Red (failure is dangerously imminent) are the color ratings. The reports range from $5 to $95 depending on the depth of the report and analysis, and $45 to $350 to get group reports and analyses of banks of your choice.
However, a special report is the Blue Ribbon Report which lists the safest of the safe banks in your city or region. Since founded in 1981, only one bank on the Blue Ribbon Report has failed.
To find your bank’s FDIC# or credit union NCUA# for free at Veribanc click FDIC /NCUA.
Weiss Ratings provides free ratings for banks and credit unions.
For banks click on bank safety and enter your bank name in the search box.
For free credit union ratings click on credit union safety.
You can also use the funnel icon on the page to find the banks and credit unions that meet the financial and safety ratings you choose.
Bauer Financial, Inc. provides some free as well as paid ratings reports from $18 to $68 on FDIC banks and NCUA credit unions. Customized reports on any bank or credit union with spreadsheets cost $250. To view available reports click here.
To order a report or ask questions call 800-388-6686, post a message on their contact page or email them at [email protected] . To get a free star rating on your bank or credit union click Bauer Rating.
The Federal Deposit Insurance Corporation (FDIC) has a free website to view both simplified and detailed financial reports (can be 90 pages +) on specific FDIC insurance banks.
To view free Federal Deposit Insurance Corporation reports on your specific bank, see the Notes at the bottom of this article. Knowing how to read simple financial statements is useful.
As of May 2, 2023, financial media was overwhelmingly certain about the inevitability of a serious recession happening in 2023 and many more banks failing.
The immense problems of high inflation, the US national debt being 120% of government annual tax revenues, the Yuan replacing the US dollar in many international transactions, and poor management in hundreds of US banks is scary. High-income earners can have excessive levels of debt and have cash in an unsafe safe bank or credit union just as easily as those who earn far less. Everyone can take defensive steps to protect their finances with the above information and make their ride through the next recession less bumpy.
How to access financial information about your FDIC Bank
- Find your bank’s FDIC number here.
- Click on this FDIC page and enter the FDIC bank certification number) and click Search.
- Your bank name will be displayed. Click on “View Details”. Click View Details This will take you to the Institution Details page. On the right side of the page click Financial Information. For more options including reports up to 80 pages, click on “Latest FFIEC Call Report” under your bank’s name on the page that just opened.
- For a simple analysis on any FDIC bank for the last 3 financial quarters click here. Click on Select Report Type and chose Executive Summary Report. Next click on the ID RD cell (next to Unique Identifier and choose FDIC Certificate Number and enter your bank’s FDIC Cert # in the empty cell to the right and press search. Then choose the quarters of the year that you want to view. You can view reports from the last quarter or up to two decades back in time to compare financial data. You can print or download the report.
- The FDIC website has a huge amount of data. Another way to navigate around the website and find general reports on healthy or distressed banks go to Bank Find Suite of Data Tools.
You may also find useful the Latest FFIEC Call Report and Latest UBPR Report.