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Top think-tank warns ‘insolvent banks lurking in the system’ as 200 US lenders face risks

Top think-tank warns 'insolvent banks lurking in the system' as 200 US lenders face risks

The widening concerns in the United States banking sector have raised the alarm among experts, who now predict that more lenders will likely face insolvency.

Analysts at the Hoover Institution think-tank have specifically highlighted that several US banks are already facing losses, and the involvement of these lenders in the system has led to concerns over an acceleration of bank runs, This is Money reported on May 6.

The crisis has reportedly impacted around 200 lenders, whose sustainability was further threatened following the recent interest rate hike.

‘There are several potentially insolvent banks lurking in the system,’ said Amit Seru, finance professor at Stanford University and one of the Hoover report’s authors.

Notably, the speed at which bank runs have been happening has become a cause for concern among officials, especially with the impact of social media. This was highlighted by the fact that three of the four biggest bank failures in US history have occurred in the last two months, which is considered a unique and alarming situation.

A hole in banking balance sheet

According to Seru, the analysis of the banking sector indicated that the industry was facing shortages in its balance sheet while noting the recent collapses were not unusual. 

“We found that there was a big hole in the balance sheet of the aggregate banking sector. You’re talking about $2 trillion of losses, roughly, or the monetary tightening that has happened over the last year,” he said

It is worth noting that the crisis began with the collapse of the Silicon Valley Bank and Signature Bank. The situation was accelerated following the recent collapse of the First Republic Bank. The bank’s assets were sold to JPMorgan Chase (NYSE: JPM) in a deal aimed at resolving the largest US bank failure since the 2008 financial crisis. 

In the meantime, market attention has shifted to PacWest Bancorp, a Los Angeles-based bank. The bank has entered into talks with potential partners and investors to explore strategic options, leading to a slump in its share price. This development has rekindled market fears of a worsening banking crisis, dragging down the share prices of other regional lenders.

Attention on Bitcoin 

With the US banking sector in turmoil, investors are exploring alternative assets, with Bitcoin (BTC) emerging as the favorable option. Notably, the maiden cryptocurrency has capitalized on the situation by attaining a new multiple-month high. 

In this line, Validus Power Corp.’s executive director, Greg Foss, has noted that Bitcoin can act as insurance for the crisis in the fiat and the general financial sector. 

“You can look at bitcoin as being insurance on the failure of a basket of fiat currencies.<…> Bitcoin is a free and open market; it’s a thing of beauty, and it means different things to different people, and it can get valued in a whole lot of different ways ultimately it settles on the market, Foss said.

He pointed out that Bitcoin is unmanipulated while terming fiat as a Ponzi scheme manipulated by individuals such as Jerome Powell, the Federal Reserve chair.

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