FED ISSUES NEW WARNING

[Legally_Speaking2512]

Central Bank is reporting that lenders are tightening lending practices due to recent loan losses and deposit flight. The Fed citing recent collapses of Silicon Valley Bank, Signature Bank, and the more recent collapse of First Republic Bank as one of the reasons for these tightened standards and  could lead to a slowing of economic growth (Politi et al.).

The Fed added: “A sharp contraction in the availability of credit would drive up the cost of funding for businesses and households, potentially resulting in a slowdown in economic activity" (Politi et al.).

While I do understand their concern for the slowing of the economy, what I do not understand is there lack of concern on banks reporting higher than usual delinquency rates. I feel like we are heading for another bailout situation here with this financial crisis. Am I alone in thinking this? 

References:

Politi, James, et al. “Subscribe to Read | Financial Times.” Federal Reserve Warns of Credit Crunch Risk After US Bank Turmoil Lenders Signal Plans, 8 May 2023, www.ft.com/content/77d42ab5-694b-4bdb-9e5b-d8e106e2c02f.

[DONZI]

..the FED, sigh.

I'm no economics wizard, but WHAT?!

- Raise interest in hopes of uh.. raising unemployment and inflation?

- population - so, stuff costs more, gotta work more, get a job, etc.

- banks - wha? Ohhh Noooos!

- Wha? Fed, why so many people working? Let's raise interest again.

- population - stuff costs more still, got to work to pay the bills and put my stash in a MMF or mega-bank

- Wha? Fed, what's up with these mofo's?! Ohhh Noooos! We hit our credit limit, make some money..

..I don't need a economics degree to see why leaving retirement or getting a second, third job due to rising expenses certainly could be a reaction to rising costs. What I guess the Fed expects is everyone tank, file BK sink into a pit and take welfare or something.

Seems a bit like monkeys playing pin the tail on the donkey to me. Am I missing something?  ..certainly won't be the first time.

[SouthJamaica]

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@Legally_Speaking2512 wrote:

Central Bank is reporting that lenders are tightening lending practices due to recent loan losses and deposit flight. The Fed citing recent collapses of Silicon Valley Bank, Signature Bank, and the more recent collapse of First Republic Bank as one of the reasons for these tightened standards and  could lead to a slowing of economic growth (Politi et al.).

The Fed added: “A sharp contraction in the availability of credit would drive up the cost of funding for businesses and households, potentially resulting in a slowdown in economic activity" (Politi et al.).

While I do understand their concern for the slowing of the economy, what I do not understand is there lack of concern on banks reporting higher than usual delinquency rates. I feel like we are heading for another bailout situation here with this financial crisis. Am I alone in thinking this? 

References:

Politi, James, et al. “Subscribe to Read | Financial Times.” Federal Reserve Warns of Credit Crunch Risk After US Bank Turmoil Lenders Signal Plans, 8 May 2023, www.ft.com/content/77d42ab5-694b-4bdb-9e5b-d8e106e2c02f.

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Uh, what did they think would happen when they went on a wild money-tightening binge?

[805orbust]

Uhhhh, you are NOT alone in this thinking. They literally gave JPMorgan the money to buy up the last one... ridiculous 

[Lou-natic]

The circus is in town but the monkeys are on the loose and the ringmaster is at the bar getting drunk.

[Nomad3]

I had no idea.. I keep getting generous PCLI's and decent increases on asked-for-CLI's. Hard to believe they're tightening their pants

[GApeachy]

I believe the difference between what happened in 2008 and what's happeing now is the money is going to the customer (Depositors) not the shareholders and bondholders.  

ETA:

To answer your question....I believe the bailout already happened.  Some say it is a bailout and others say it isn't.  I don't know but whatever it's called it already happened and for the Depositors, not the banks.  

Other banks like HSBC has bought out portions of those banks but the banks themselves will not be bailed out it appears.

[iced]

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@Legally_Speaking2512 wrote:

While I do understand their concern for the slowing of the economy, what I do not understand is there lack of concern on banks reporting higher than usual delinquency rates. I feel like we are heading for another bailout situation here with this financial crisis. Am I alone in thinking this? 

References:

Politi, James, et al. “Subscribe to Read | Financial Times.” Federal Reserve Warns of Credit Crunch Risk After US Bank Turmoil Lenders Signal Plans, 8 May 2023, www.ft.com/content/77d42ab5-694b-4bdb-9e5b-d8e106e2c02f.

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Looking at https://www.federalreserve.gov/releases/chargeoff/delallsa.htm, it's very hard to make any argument (possibly outside of consumer and credit card loans) that delinquincy rates are higher than usual...because they're not. They're higher than the historically low rates we saw during the pandemic, but go back before then and one quickly finds it's not so alarming after all.

Higher delinquincy rates is a return to pre-pandemic normalcy, so there's no reason to raise a red flag.

[sjt]

Here is a link to an article on inflation and interest rates. It's a high-level overview read.

https://www.meettally.com/blog/how-does-raising-interest-rates-help-inflation

[805orbust]

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@Lou-natic wrote:

The circus is in town but the monkeys are on the loose and the ringmaster is at the bar getting drunk.

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@Lou-natic it is 1:30am and I am sitting here attempting to visualize this and splitting a gut!  🤣🤣🤣🤣