Bank failures

The 4th, 3rd and 2nd largest bank failures of all time?occurred last week, if you believe the newspaper reports.
We are use to disasters in the cryptocurrency world, but they are extremely rare in the banking world, and this enormulous occurrence is reducing Americans trust in their banking System.
The magnitude of the problem is found in the details: American Bank Acounts are guaranteed by the Federal Government agancy called the FDIC, but to maximum of 250,000 USD. Businesses with account balances of several millions or billions would have their accounts frozen in a bank failure, and be unable to withdrawal cash to pay their employees or their bills. Because these three Banks were the main Banks for Tech Start-ups of all kinds the Newspapers reported over 10,000 business accounts over 250,000 dollars, and those 10,000 businesses have close to a million employees and thousands of creditors. All of whom would not receive paychecks or payments for goods and services.
In other words, a DISASTER.

In order to restore Public trust the US President announced an unprecidented bank bailout : All depositors will be made whole, all accounts will have access to their funds.

What Does This Mean? And Why is it Unprecedented?

Bank Accounts are insured
Normally bank accounts are insured by the FDIC to a maximum of 250k
All accounts over 250k could potentially lose access to all funds over 250k in the event of a bank closure.
Thats why companies with account sizes over 250k use banks which are members of the Federal Reserve System because they are closely regulated and have access to an Emergency Fund to help them from failing in emergencies
However these rules and guarantees are part of the Dodd-Frank Rules, a historic set of laws which came about after the 2008/2009 banking crisis, which is the same banking crisis which led to the birth of Bitcoin.
The government bailed out the banks, but the people suffered, losing their homes and savings.

This will be debated for years, but the three most common reasons sited are:
- Rising interest rates by the Fed at an unprecedented rate
- Abolition of the 90% limit to investment of deposited funds
- Banks investment errors investing in long term, low interest securities, which lost tremendous value in a sudden pivot to a higher interest rate environment created by the Fed
- High Fed rates led to reducing loans and reduced borrowing causing increase need for withdrawals.
- These factors led to the Banks having to sell Long tern low interest investment bonds at a loss to satisfy their short term cash needs due to investor withdrawals and debt payments, creating huge imbalances between assets and liabilities on the Banks balance sheet. Which is basically not allowed and the bank Regulators seized the banks when the Banks couldn't secure enough funds to add to their assets to balance their liabilities.

The banking crisis of 1008 led to these rules, which put strict limits on Banks and imposed new regualtions.
These rules were repealled in the anti-regulation, anti-government interference environment of the last US Government Administration.
Fractional Banking , the rule that allows Banks to loan out 90% of depositors funds to make money use to require 10% of depositors funds to be on hand at all times was one rule relaxed to no specific percentage was required.
Short term investment/ Long term investment rules, which put limits on the investment of funds which needed to be available for short term liabilities to be invested in short term securities, was also repealled or relaxed. - Banks are now allowed to invest 100% of customers cash and they have the freedom to choose what type of securities they invest customer funds into..
This led to record profits until...

markets weed out the slow to adapt and reward the quick
The Fed went on a tear of raising the federal Interest rate on the money the Fed leands to banks at an unprecedented height for an unprecedeneted number of quarters.
The result was several banks got caught with funds they needed to meet unexpected short term liabilities like customers withdrawaling funds, in longterm investments, which the banks then had to sell at a loss. Because when the Fed made it more expensive to borrow money with rate hikes, companies started withdrawaling their cash to pay expenses and Banks found themselves in a squeeze between mounting losses due to rate hikes eating away at their profits, rate hikes reducing the value of low interest long term securities they bought, which had to be sold at a loss, and customers increased withdrawals of depositied cash further reducing their total deposits and all this created huge imbalances in their balance sheets.
These three things led to liabilities suddenly exceeding assets, Banks who were unable to secure enough credit funds which don't show as liabilities to increase the asset side of their balance sheets, and the federal Regulator the FDIC shut them down.

President Biden anounced all the people who run those banks will be fired.
President announced all the customers who have depositis will have access to those deposit.
President Biden anounced that even companies with deposits over the 250k limit of FDIC insurance will have access to all their funds, in other words, in an unprecedented move accounts over 250k are provided unlimited insurance to protect their accounts.
President Biden stated the funds will come from a fund created by the banks to cover their losses in exactkly such a scenario.
President Biden stated investors in those banks will not be made whole, they will lose all their money, which is the way capitolism works.
We live in historic Times, and you will need to remember all this to tell your granchildren how the greatest nation on earth fell, vitim to greed, avarice and corruption.

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