Recent liquidity problems at Silicon Valley Bank and Silvergate have raised concerns about the stability of the US banking system, with experts warning that European banking contagion could spread to the US. CNBC’s Jim Cramer has taken to Twitter to share his thoughts on the issue that saw crypto markets experience a short downtrend, stating that waiting for the results of the Silicon Valley Bank auction is crucial to understanding the situation.
He also commented on the fact that seeing which banks need to start raising equity to match the mismatch of held-to-maturity long paper and deposit flight is also critical to understanding the problem.
Cramer believes if things don’t change, banks will lead to a discriminatory doctrine
Cramer expressed concerns that highly concentrated deposit bases in some banks could be vulnerable to a few large depositors fleeing, which could result in a decline in the stock price of those banks. He warned that until all banks have insurance for all deposits at a much higher amount, if not infinite, the big banks will continue to dominate the market, leading to a bad and discriminatory doctrine.
He also noted that two clashing doctrines exist, with one stating that no one bank should be bigger than ten percent, and the other suggesting that not all banks are insured equally because the big banks have the best deposit base and are the most tightly regulated. This disparity could lead to a situation where corporate treasurers would need to check a bank’s held-to-maturity bond book before depositing large sums overnight.
Cramer: Corporate treasurers are the problem
The CNBC host stated that the problem lies in the fact that corporate treasurers are compelled to take more than $250,000 out of any bank, given the recent liquidity concerns. Cramer believes that an anonymous pledge from the Treasury Department is not sufficient to address these concerns, and he urged for a resolution that would ensure all deposits are insured at a higher amount, if not infinite.
Cramer’s concerns about the state of the US banking system highlight the potential for European banking contagion to spread to the US. His tweets serve as a warning to investors, urging them to exercise caution when selecting banks to invest in. The ongoing Credit Suisse saga has highlighted the potential for issues to arise within banks, which can have significant ramifications for the broader financial system. Amid these developments, the recent rise in crypto can be stipulated to crammer’s concerns as investors could be turning bullish on cryptocurrency amid seeing the type of vulnerabilities presented by banks.