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Small US Banks Face S&L-Style Catastrophe, Says DICK BOVE. Banks’ Funding Costs Rise, Asset Values Decline. Plus, Latest Signs of Imminent Recession
The CONVERSATION opens with DICK BOVE’s review of the latest data from the Fed’s Beige Book on economic conditions in America. BOVE concludes that all the data points to a peak in activity across many sectors. “Everything that came back was indicative of a significant slowing in the economy,” says BOVE, chief financial strategist at ODEON CAPITAL GROUP. Alongside a separate Fed weekly report of financial indicators, one showing a decline in bank deposits, BOVE says economic activity is shrinking. “Every metric in the economic looks looks so negative,” adds MAT VAN ALSTYNE, ODEON co-founder and managing partner.
The Fed’s campaign to tame US inflation appears to be succeeding. But with the succession of interest rate rises unleashed to reduce the pace of price rises in the economy, came trouble for smaller banks.
The CONVERSATION examines the health of the US bank sector weeks after the collapse of SVB and other banks. “Banks are in a pickle and the only answer to their dilemma is if the Fed dramatically lowers interest rates,” says VAN ALSTYNE. BOVE says that course of action is unlikely. “The Fed is beating inflation,” says BOVE.
Taking a deeper dive, BOVE sees increasing risk of a major Savings & Loan (S&L)-style crisis for smaller US banks in the current era of high interest rates and declining assets in bank portfolios.
The S&L Crisis resulted in the collapse of about a third of the 3,234 savings and loan associations in America in the period 1986 and 1995. Joining the CONVERSATION, JOHN AIDAN BYRNE raises the prospects of a far deeper recession than many are anticipating as he reprises the recent analysis of market statesman and billionaire investor, RAY DALIO.
Questions & Comments: Podcast@OdeonCap.com
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