CAPITAL STRUCTURES CURRENTLY MORE FRAGILE THAN DEPOSIT SECURITY


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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Contact The Author: [email protected]