Back in 2008, the U.S. banking system nearly collapsed as multitudes of bad and risky investments in the housing market created insolvencies for long-standing institutions like Bear Stearns and Lehman Brothers. And while taxpayers and the Federal Reserve were able to stave off complete collapse with tens of trillions of dollars in bailouts and security buybacks, a new report compiled by the central bank and government regulators on Nov. 5 shows that history is once again repeating itself, and that the solvency of many banks are at risk due to the same bad investments they made before, only this time in the oil industry.
Most of the U.S. oil and fracking producers run their operations on massive debt and leverage, relying upon a minimum of $80 oil prices just to break even. However, when oil prices plunged down into the low $40’s earlier this summer, revenues were not only unable to pay for current obligations, but they placed the banks that made these loans in serious trouble since the loans were tied to junk bonds along with massive derivative hedges.
Late last week, a consortium of financial regulators in the United States, including the Federal Reserve and the FDIC, issued an astonishing condemnation of the US banking system.
Most notably, they highlighted “continuing gaps between industry practices and the expectations for safe and sound banking.”
This is part of an annual report they publish called the Shared National Credit (SNC) Review. And in this year’s report, they identified a huge jump in risky loans due to overexposure to weakening oil and gas industries.
Make no mistake; this is not chump change.
The total exceeds $3.9 trillion worth of risky loans that US banks made with your money. Given that even the Fed is concerned about this, alarm bells should be ringing. – Sovereign Man
Unlike the after-effects of the 2008 Credit Crisis, where it was the U.S. government who bailed out the banks with taxpayer money to stave off insolvencies, this time it will be depositors and investors who have accounts in these banks who will be on the hook for any required form of bailouts.
For several years now, financial analysts in the alternative arena have pointed towards what occurred in the nations of Cyprus and Greece as a blueprint for what is coming for people who simply hold checking, savings, or small business accounts in banks that continue to speculate in risky investments, and who are vulnerable to sudden shifts like the one we have now in the oil industry. And thanks to the Dodd-Frank legislation that came out of the 2008 banking crisis, it is only a matter of time before your money is confiscated to re-capitalize these speculators, and is used to bail-in banks that even the Federal Reserve says are now on the edge of insolvency.