The US banking system is facing another potential domino to fall as several regional bank stocks suffer significant losses in the early part of this week. PacWest Bancorp, which provides business banking and treasury management to small and mid-sized businesses, saw its share price collapse 39% early on Tuesday morning. While the exact reasoning behind the collapse of PacWest’s share price is not immediately clear, the bank’s significant loss has analysts wondering whether it will be the next episode in a series of hits on the American banking system.
Crypto veteran and BitMEX founder Arthur Hayes expects PacWest to be seized by the Federal Deposit Insurance Corporation (FDIC), which will further add to the stress on the US banking system. PacWest is currently trading just above $6, a staggering 90% down from its all-time highs.
Western Alliance Bancorporation (WAL), an Arizona-based regional bank, also experienced a big dip on Tuesday morning, shedding nearly 20% off its share price. Meanwhile, Metropolitan Bank Holding Corp (MCB) is down 18% on the day, despite beating earning expectations just weeks ago.
These significant losses have led some experts to suggest that the crisis in the US banking industry is far from over. Last week, the chief investment officer from J.P. Morgan Asset Management said that the banking problem is not limited to First Republic Bank and warned that the banking system is heavily dependent on the FDIC and the Federal Home Loan Bank to get additional cash. He went on to say that the regional banks are in a precarious position, and we don’t know how they will operate when those two programs expire.
On Wednesday, the Federal Open Market Committee (FOMC) will convene to announce its next decision on interest rates, and a 0.25 bps point hike is expected. However, former Goldman Sachs executive and Real Vision founder Raoul Pal says the Fed will likely have to think twice about another rate bump, given the situation in the banking sector. The banks are suggesting that the Fed would be crazy to raise rates again, Pal said, adding that the situation is compounded by the risk of more noise around the debt ceiling and possible liquidity removal. Pal believes that a bonds + crypto moment is brewing, which could further add to the uncertainty in the financial markets.
The ongoing crisis in the US banking industry highlights the vulnerabilities of the legacy financial system. Despite being one of the most heavily regulated and capitalized industries on the planet, the banking system is facing severe challenges, and the situation is not expected to improve any time soon. The pandemic, along with other factors, has placed significant stress on the system, and many experts believe that the worst is yet to come.
The rise of cryptocurrencies and blockchain technology offers an alternative to the traditional financial system. Blockchain technology provides a secure and transparent way to conduct financial transactions, and cryptocurrencies offer an alternative store of value that is not tied to any government or financial institution. While cryptocurrencies and blockchain technology are still in their early stages of development, they have the potential to disrupt the traditional financial system and offer a more decentralized and secure alternative.
In conclusion, the US banking crisis is heating up, and the situation is not expected to improve any time soon. Regional banks are facing significant challenges, and the system is heavily dependent on the FDIC and other government programs to keep it afloat. The ongoing crisis highlights the vulnerabilities of the legacy financial system and underscores the need for alternatives. Cryptocurrencies and blockchain technology offer a potential solution to the problems facing the traditional financial system, and they are likely to play an increasingly important role in the years to come.
