The global financial sector is striving to move past the 2023 banking crisis that posed a significant economic threat. Despite indications that this crisis has subsided following regulatory intervention, various experts are cautioning that renewed concerns are warranted, pointing to the potential for a fresh collapse in the sector.
In this case, macroeconomics expert George Gammon, in an interview with Kitco News published on November 17, pointed out that the measures taken to contain the 2023 crisis could indicate when the next might occur.
According to the expert, the subsequent banking sector collapse could happen in March 2024. His warning stems from a retrospective analysis of March 2023 that involved the collapse of institutions such as Silicon Valley Bank (SVB), First Republic, and Signature Bank, which were partly rescued through the Bank Term Funding Program (BTFP).
Picks for you
Gammon emphasized that the Fed’s temporary intervention is set to end on March 11, 2024, and the initiative is witnessing increased utilization compared to the peak of the crisis in March 2023, indicating ongoing and heightened risks within the system.
“That program technically is only temporary; it ends March 11 of 2024.<…> You need to look at the utilization going back to March of 2023; the utilization of that BTFP went up <…> So now everyone thinks that we’re past that point where the FED came in and solved all the problems and now there’s no more banking crisis. <…> My point is if it’s being utilized more and more, that means there’s a lot more risk within the system. If you just rug pull that BTFP, you’re going to have the exact same scenario that we would have had in March If the Fed wouldn’t have rolled it out, to begin with,” he said.
As the utilization of the BTFP continues to rise, Gammon urged vigilance and a comprehensive assessment of potential consequences beyond the temporary Fed program, urging stakeholders to brace for potential banking sector challenges in the coming months.
However, he pointed out that a banking system collapse could be averted if regulators step in and take necessary measures, noting that there is room for the extension of the BTFP, but it’s not a guarantee.
Possible CBDC implementation
At the same time, he pointed out that the banking crisis could prompt the Federal Reserve to introduce a central bank digital currency (CBDC) with its potential for a recession and broader implications. In this scenario, the consolidation of all banks, possibly under a significant entity like JP Morgan (NYSE: JPM), would result in concentrated ownership of the Fed.
Recognizing the Fed as a private corporation with its shareholders being the banks in its network, Gammon suggested a potential consolidation strategy. If only one bank remains, it effectively owns the Fed. The Fed’s incentive lies in ceasing existing funding programs, causing multiple bank collapses, and streamlining the banking sector. This process brings the CBDC implementation closer.
The expert noted this isn’t a definitive prediction but a potential scenario, emphasizing the intricate factors influencing the Fed’s decisions on the banking crisis and CBDC introduction.
