Headline:
You Can Ignore Reality…But You Cannot Ignore The Consequences Of Ignoring Reality.
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Bank Capital Structures = Debt + Equity…
Both Are Fortified + Supported By Deposits.
Deposit Instability/Outflows = Stress + Weaken Bank Capital Structures.
Currently Compromised Capital Structures = Prompted + Amplified By…
“Mark To Market” Losses…On Banks’ Enormous U.S. Treasury Note + Bond Portfolios [AKA Reserves].
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Reserve Losses = A Function Of…
Sloppy Reserve Portfolio Structure = Too Long In Duration…
As Banks Stretched For Yield During 10 Years+ Of A Positively Sloped Yield Curve…Anchored By ZIRP.
Fixed Income Investment Script + Yield Curve Flipped Violently Last Year…
Brisk + Steep U.S. Interest Rate Increases Pressured/Punctured Reserve Valuations…
SIVB Reserve Disclosure = Sudden Capitulation + Liquidation Of Entire $20B Portfolio =
Catalyst For Regional Bank Deposit Flight + Panic.
SIVB Investor Perception = “Tip Of The Iceberg” For Regional Bank Universe.
Thus…Severely Rattled Investor Confidence.
Furthermore And Importantly…
Regional Banks Are Subject To A Less Stringent Regulatory Framework…Than The Systemically Important TBTF Mega-Banks…
Resulting…For Now…In Much Harsher Financial Market Punishment For The Regional Banks.
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So…UNTIL Investors/Traders Perceive Banks As Sufficiently Capital Fortressed…
And Architected By A Diversified + Stable Depositor Base…
Confidence In Most Financial Capital Structures…Especially The Regional Banks …
Will Continue To Be Tremendously Scrutinized + Tested By Market Actors.
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However…When Investor Confidence + Perception Nadir…
The Subsequent Rally In Financial Equities Will Be Exceptionally Steep + Swift.
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