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NY Fed warns of risk to major U.S. banks, 'something amiss in the banking system,' says Soloway teaser image
here is something "amiss" in the U.S. banking sector, says Gareth Soloway, Chief Market Strategist at VerifiedInvesting.com, warning that big institutional players are "unloading" the stocks of big banks.
"I'm hearing a lot of chatter about the big banks unloading bad debt right now, trying to get ahead of some sort of crisis looming," Soloway tells Michelle Makori, Lead Anchor and Editor-in-Chief at Kitco News. "Because interest rates are so high, the amount of losses in mortgage-backed securities potentially rival what we saw in 2008 and 2009. In addition, the commercial real estate market is in tatters. And these are all things that banks are holding on their balance sheets."
Soloway points to the SPDR S&P Regional Banking ETF (KRE), noting the formation of a bear flag pattern since the banking crisis lows of April last year. Watch the video above for Soloway's breakdown.
There has also been a technical breakdown in the stocks of some of the bigger banks, including JPMorgan, according to Soloway.
"This trend line breakdown just started on JPMorgan, Citigroup has already broken down," Soloway added. "There are signs that something is amiss within the banking system, whether it's the bear flag in the KRE or in these bigger banks. There are some bigger players that are unloading the big banks here."
Federal Reserve Chair Jerome Powell commented on the banking sector at the June press conference following the central bank's two-day monetary policy meeting.
"The banking system has been solid, strong, well-capitalized lending. We've seen good performance by the banks. We had turmoil early last year, but banks have been focusing on bringing up their liquidity, bringing up their capital, and having risk management plans in place. So, the banking system seems to be in good shape," Powell said.
Soloway reacted to Powell's comment by pointing out that the Fed Chair would never come out and say there is a big issue in the banking system. "Think about the fire that would spread in the market crash that would ensue if he said that," Soloway noted.
Soloway's warning comes as the New York Fed's Liberty Street Economics blog cautioned of U.S. big banks facing growing spillover risks from non-banks.
During periods of increased market volatility, liquidity demand accelerates, putting pressure on banks as non-banks look for loans and lines of credit. This could trigger "vectors of shock transmission and amplification, forcing authorities to intervene and do so en masse," the post said, adding that the disruptions "could be rather severe."
At the same time, the Federal Reserve pointed to weaknesses in four of the biggest banks on Wall Street regarding how they would handle their own failures.
According to a joint statement released Friday by the U.S. central bank and the Federal Deposit Insurance Corporation, the regulators spotted shortcomings in the so-called "living wills" of JPMorgan, Bank of America, Goldman Sachs Group, and Citigroup.
"For the four banks with an identified shortcoming, the letters describe the specific weaknesses resulting in the shortcoming and the remedial actions required by the agencies," the agencies said.
Soloway also revealed the black swan event investors need to pay close attention to in the year's second half. Watch the video above for insights.
In addition, Soloway shared his technical analysis of gold, silver, and Bitcoin. Watch the video above for his short-term and long-term price forecasts.
Kitco Media
Anna Golubova
