Neighborhood Ministries

While the bank’s failure resulted from poor management by the bank, it was made worse by government manipulation of the economy. The BTFP provides temporary loans to insure banks can cover deposits so they don’t fail and the FDIC guarantees losses when banks fail, but they are designed to help in a limited crisis during a normal economy. President Trump built up a stable economy and when Covid hit, it created a temporary crisis. President Trump provided stimulus money to help those out of work during the shutdown and used BTFP funds to help banks weather the crisis which was helpful. However, President Biden prolonged the shutdown after the initial crisis was over, prolonging the crisis. In addition, he continued to pour out stimulus money discouraging workers from returning to work. He is still giving out stimulus money. It continues to prolong the crisis. It has also disrupted the economy that was needed to help the banks recover. Banks don’t just put the money that is deposited in a vault and wait for you to come get it. They loan it out at interest to make the money needed to operate with the confidence that it will be repaid before you come to get it. They depend on regular deposits to supply the money they need to loan out. Many  people are using  the stimulus money to live on and delaying returning to work rather than saving it. In addition, with a deteriorating economy and high inflation fueled by massive government spending, depositors don’t have the money to deposit and have reduced deposits to cover their needs, so the banks don’t have the money on hand they need to cover withdrawals. In addition, the federal government has been raising interest rates to combat inflation, so banks are forced to borrow money at high interest to cover loans they have made at low interest. Higher interest rates have also discouraged borrowing so there isn’t as much interest coming in to cover operating costs.

The system has stacked up layers that spread the risk. In a normal economy, one bank may fail, but a regional bank is backing it so it is no problem because the regional banks are dealing with a lot of local banks who can help absorb the loss. A region may be hit by a disaster, but the regional bank is supported by the federal banking system which is supported by all the regional banks. If the federal banking system runs short, they can draw on the World Monetary Fund. It is like an insurance policy. In simple terms, if you have 100 people paying into a policy, and they each pay $100 a month, in 10 months it builds a fund of $100,000. If someone has an accident, totaling $15,000, it is covered by the fund. It is no problem if several have accidents because they can all be covered. It is very unlikely that everyone is going to have an accident. Since people are constantly paying premiums, it is constantly replenishing money paid out in settlements. If there was a hurricane and it wiped out all the cars, the company would have to fold because they couldn’t cover the losses.  That is where the banking failure gets scary.

Funds to help the banks will come from the Bank Term Funding Program (BTFP) which makes short term loans to shore up financial institutions during a financial crisis, The BTFP allows the FDIC to provide additional funds to banking institutions to make sure they have the funds to meet needs of their depositors, accepting collateral not normally accepted. It is backed by funds from the Exchange Stabilization Fund. That includes assets normally considered too risky. It allows the FDIC to trade credits with the U.S. Treasury in order to draw funds. It can also draw Special Drawing Rights from the World Monetary Fund (WMF). They aren’t currency but are a claim on funds held by the WMF.  It spreads the risk. Large banks support small banks with loans to cover their loans, enabling small banks to loan beyond their ability to cover their loans. By guaranteeing all deposits, the government has eliminated the risk, and eliminating the risk has a downside.  Banks are normally cautious how they use their funds to limit their loses, however, without risk, they are tempted to take any risk that will net them a profit.  That is courting disaster.

The shell game continues as President Biden promises to guarantee all the deposits in the failed banks while guaranteeing that no money will come from taxpayers. It will come from the FDIC (Federal Deposit Insurance Corporation) which guarantees losses in case of bank failure up to $250, 000. That fund is supported by deposits made by the banks as insurance premiums in the event they fail. However, President Biden is guaranteeing all deposits, even those exceeding the $250,000 limit so if losses exceed that limit, it will come out of taxpayer dollars. Since small depositors will fall within the $250,000 limit, it is the large depositors that President Biden is benefiting. So essentially, the government is using taxpayer funds to benefit the rich. In addition, President Biden has also made a bold move that may bring down our entire banking system. He has stated that the government will not bail out the banks, but has promised to protect depositors of the failed banks. While bailouts support the bank to keep it in business, guaranteeing deposits is a literal takeover of the banking system, where the government, not the bank handles the banking.