Banking Crisis 2.0 -- Are We on the Brink of the Next Financial Crisis?

Almost a year has passed since the dramatic failures of Silicon Valley Bank and Signature Bank shook the financial world. Now, New York Community Bank, the firm that bought many of Signature Bank's troubled assets, finds itself in hot water.

In the past week, New York Community Bank has slashed its dividend by 70%, Moody’s Investor Service downgraded the bank’s credit to junk (its lowest possible investment grade rating), and its stock price has plummeted more than 60%.

The hope that last year's regional banking crisis was a one-off event is quickly disappearing. Now Jerome Powell says “it feels like a problem we’ll be working on for years...”

The statement has left many wondering: are we on the brink of the next financial crisis?

Before we dive into the latest on the regional banking crisis, let's catch up on some of the latest news stories affecting the financial world.

Strong Economy Fails to Lift American Spirits
Despite indicators of a strong economy like consumer spending, moderated inflation, and an unemployment rate below 4%, Americans remain pessimistic about their economic future. This paradox has left economists puzzled. The simple fact is this: the U.S. Dollar doesn’t go as far as it used to and people are starting to feel deep concerns over the country’s long-term financial security.

Nationwide Rental Costs Drop for Third Straight Month
According to data from Redfin, the national median rent price fell for the 3rd consecutive month in December. That’s great news for renters. But that will squeeze profit margins for landlords and real estate investors – not to mention, even less revenue for banks.  

McDonalds Facing Backlash from Loyal Customer Base
Once known for its budget-friendly means, the cost of a Big Mac combo meal has surged to nearly $18 in certain locations, sparking widespread criticism online. Despite the backlash, McDonald’s customers should brace for even more price hikes. The chain’s prices are set to increase 2-3% this year, according to restaurant analyst Mark Kalinowski.

Super Bowl Betting Estimated to Increase 35% YoY This Sunday
Estimates show one in four Americans – or roughly 68 million people – plan to bet on this year’s Super Bowl. The gambling industry's national trade association forecasts that bettors are set to wager $23.1 billion on the event, shattering previous records by a significant margin.

What percentage of all the world’s gold is held by central banks?

A. 12%
B. 20%
C. 36%
D. 55%

Scroll to the bottom of this email for the answer...

S&P 500 Nears Historic 5,000 Milestone

Despite many problems plaguing the U.S. economy, there’s a vibrant optimism coursing through Wall Street. Over the past 12 months, the S&P 500 Index is up roughly 20%, surprising many financial analysts. This remarkable rally has propelled the index to the 5,000 mark for the first time in history.

At the same time, almost half (49%) of U.S. adults say they wouldn’t be able to cover a $1,000 emergency using only cash or their banking accounts.

Homelessness has reached an alarming peak, with over 650,000 Americans lacking shelter, according to a report from Harvard’s Joint Center for Housing Studies. 

That’s a 12% increase from the year before.

And in a revealing snapshot of national sentiment, a Pew Research Center survey from April 2023 shows that an overwhelming 68% of Americans expressed pessimism about the country’s future. The economy, growing political divisions, and societal problems were the most common reasons.

The truth is a thriving stock market does not equate to widespread economic well-being. With many Americans grappling with financial hardships at a time when the stock market is surging 20% in a single year, the disconnect between Wall Street's gains and the public's struggles is more apparent than ever.

Banking Crisis 2.0
Moody’s Downgrades New York
Community Bank to Junk Status

The banking industry is bracing for a crash. New York Community Bank’s shares plunged earlier this week.

NYCB isn’t a small-scale operation... It's one of the largest regional banks in America. NYCB is:

• The 5th largest sub-servicer of mortgage loans across the country...
• The 7th largest originator of residential mortgage loans...
• And has over 420 branches nationwide...

NYCB has roughly $84 billion in loans with a large portion allocated to multifamily housing. Out of this, $30 billion is in buildings where rents are controlled by rules to keep them affordable. New regulations have made these buildings less valuable, which is good news for those renters, but its bad news for the bank.  

The stock has dropped as low as 60% over the past eight trading days.

Treasury Secretary Janet Yellen said, “we are monitoring current banking stresses very carefully... Commercial real estate is an area that we’ve long been aware could create financial stability risks or losses in the banking system...”  

According to Capital Economics deputy chief property economist Kiran Raichura, there is $2.2 trillion in commercial real estate debt coming due by 2027. These debts now face refinancing at significantly higher rates. Loans that were sitting at 3-4% are now needing to be refinanced at a solid 8%.  

How much of that debt is going to be defaulted on?

The Crisis is Likely Just Getting Started  

Jerome Powell seems to believe commercial real estate’s impact on banking has just begun, saying it’s a “problem we’ll be working on for years...”

When banks failed in 2008, many investors turned to gold as a safe haven to protect their savings. In the three years following Lehman Brothers collapse, gold went up 114%.

Since the collapse of Silicon Valley Bank last year, the mainstream media has led us to believe the regional banking crisis is contained. These current developments suggest a broader, more systemic banking crisis is likely on the horizon.

Could this be the start of the banking crisis 2.0?

At GoldSilver, we’ve been ahead of the curve, highlighting the vulnerabilities within commercial real estate and banking for some time.

In fact, Mike put a video out on the dangers in commercial real estate explaining the depth of this crisis recently.

See what Mike has to say about the situation right here.

That will conclude this week's edition of GoldSilver Nuggets. Join us again next week as we keep you updated on the regional banking crisis and gold and silver.

Best,

Brandon S.  
GoldSilver

What percentage of all the world’s gold is held by central banks?

A. 12%
B. 20%
C. 36%
D. 55%

Answer – B. 20%

Gold reserves provide a form of financial security and stability for central banks. By holding gold reserves, central banks can diversify their assets and reduce the risk of losses during turbulent periods in financial markets.

According to the latest data from the World Gold Council, central banks account for around a fifth (20%) of all the gold that has been mined throughout history.