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Best cryptos to buy now for February 2023

Despite what the merchants of doom are predicting, there are still many great investment opportunities out there, especially in a bear market and especially…

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Despite what the merchants of doom are predicting, there are still many great investment opportunities out there, especially in a bear market and especially in the crypto presale space. So as the overall economy starts to recover, what are the best cryptos to buy now for February 2023? Read on for a detailed examination of the top contenders:

The best cryptos to buy now

1. Metacade (MCADE)

2. Polygon (MATIC)

3. Gummys (GMY)

4. Decentraland (MANA)

5. Bitcoin (BTC)

6. Ethereum (ETH)

7. My Neighbor Alice (ALICE)

8. Orbeon Protocol (ORBN)

9. LuxWorld (LUX)

10. Sandbox (SAND)

1. Metacade (MCADE)

The metaverse and P2E sectors are set to explode in 2023, and that’s why so many investors are so excited by blockchain gaming newcomer Metacade (MCADE). Metacade (MCADE) offers a superb selection of futuristic metaverse and classic arcade games. Players benefit from genuine P2E functionality and can also earn income and rewards through competitions, content creation, testing new games, and employment opportunities.

Another big attraction for investors is that Metacade (MCADE) appeals equally to developers, investors, and crypto fanatics. External companies can use the platform to test and promote their products, run competitions, and recruit qualified staff. Developers have the chance to source funding for new games under the company’s innovative Metagrants initiative. And crypto fanatics and investors can generate income from staking and investment opportunities. 

Metacade (MCADE) has already successfully raised over $4.5m in its crypto presale, proving that investors endorse both the company, its concept, and planned DAO structure. Metacade (MCADE) is top of the best cryptos to buy now, thanks to its unrivaled choice of quality games, the huge potential of the crypto gaming market, and the attractive crypto presale price. Get in early while you still can!

>>> You can participate in the Metacade crypto presale here <<<

2. Polygon (MATIC)

In January 2021, Polygon (MATIC) didn’t feature anywhere on the list of the top cryptocurrencies by market capitalization. Yet just a year later, it ranked #14. And as of January 2023, Polygon (MATIC) sits just one place off the top ten most valuable crypto companies. Although there’s something to the old adage “past performance is no guarantee of future results,” Polygon (MATIC)’s spectacular rise is surely indicative of something exceptional.

So just what is it that makes Polygon (MATIC) a shoo-in for the best cryptos to buy now? Simple. First, it offers a layer-2 solution that is faster, more cost-effective, and scalable than Ethereum (ETH). Second, developers like Polygon (MATIC) because it’s so flexible and easy to use. And third, investors love its popularity, performance to date, and comprehensive plans for the future. Polygon (MATIC) is an easy choice as a top contender for the best crypto to buy in 2023.

3. Gummys (GMY)

The crypto world is starting to crisscross with many different areas, and crypto presale Gummys (GMY) is a prime example. Web3 video streaming opens up a host of new and intriguing possibilities, and Gummys (GMY) taps into that potential. Instead of play-to-earn games, Gummys (GMY) offers stream-to-earn and watch-to-earn services. Viewers can generate revenues by watching shows, interacting with producers, and creating content and NFTs.

The Gummys (GMY) crypto presale is now underway, and its innovative approach has already struck a chord with investors. This selection of the best cryptos to buy includes many familiar names, but Gummys (GMY) proves that there is always room for a new kid on the blockchain. Its crypto presale is well worth checking out.

4. Decentraland (MANA)

Decentraland (MANA) is widely recognized as a top metaverse game and is extremely popular with creatives. Artists can build a gallery where they can create and sell real and digital works of art. Designers can open a boutique to showcase wearables, jewelry, wallpaper, or anything. Developers can create new games. DJs can create their own discotheque. In short, Decentraland (MANA) is centered on creating events and experiences that could earn you revenues.

Decentraland (MANA) has been established since 2017, and that makes it a veritable veteran in metaverse blockchain gaming. That longevity, reputation, and presence are why Decentraland (MANA) makes this list of the best cryptos to buy now. But there’s more. The impressive partnerships, the potential for its metaverse to go mainstream, and the enhanced user experience all mean that Decentraland (MANA) is of great appeal to investors.

5. Bitcoin (BTC)

It’s fair to say that if the economy, in general, is doing well, then so is Bitcoin (BTC). That means positive economic forecasts and signs of recovery are welcome news for Bitcoin (BTC) investors. If you believe that the worst is over, interest rates will fall, US / China relations will improve, the Covid pandemic is now under control, and the Russia-Ukraine war has reached a stalemate – then there’s every good reason to see Bitcoin (BTC) as one of the best cryptos to buy now.

Bitcoin (BTC) still reigns supreme as the biggest and most important player in the market. That hugeness gives it structural importance in the crypto world. It’s now widely accepted by institutional investors worldwide as an integral part of their portfolios. Bitcoin (BTC)’s stature, stability, and popularity have rightly earned it the nickname of “digital gold,” and that valid comparison to actual gold is why it deserves its place here.

6. Ethereum (ETH)

In terms of market capitalization, Bitcoin (BTC) is more than twice the size of its nearest competitor, Ethereum (ETH). But just as impressively, Ethereum (ETH) is approaching three times the size of the next company on the list, Tether (USDT). The point is that Ethereum (ETH) is a market giant in its own right – and some industry watchers believe it could even overtake Bitcoin (BTC) in the future. That potential alone makes it one of the best cryptos to buy now.

But why do expert analysts believe Ethereum (ETH) could reach #1? The reason is obvious. While Bitcoin (BTC) is solely a cryptocurrency, Ethereum (ETH) takes things to the next level with its smart contract functionality. It leads the market with its support of decentralized apps and DeFi services and continues to enjoy widespread acceptance. Resilient, long-established, strong, secure, and forward-looking, Ethereum (ETH) remains among the best investment choices.

7. My Neighbor Alice (ALICE)

Prospective players can sometimes be scared off by the complexities of blockchain gaming, but My Neighbor Alice (ALICE) is a welcome antidote. Through fun games, friendly storylines, and charming graphics, players are gently introduced to the joys of crypto gaming and NFTs. My Neighbor Alice (ALICE) is free to play once players have bought their plots of land, and they can earn a profit through P2E games or by lending out their assets. 

The excellent reputation of game developer Antler Interactive underlines My Neighbor Alice (ALICE)’s credentials as a contender for the best cryptos to buy now. DeFi fans will also be attracted to My Neighbor Alice (ALICE) thanks to its extensive staking, borrowing, and lending functionality. My Neighbor Alice (ALICE) has already gathered an impressive list of partners and investors, and its appeal to both gamers and DeFi enthusiasts will surely see its popularity grow.

8. Orbeon Protocol (ORBN)

Any list of the best cryptos to buy now should include companies that have the potential to disrupt existing market dynamics. Orbeon Protocol (ORBN) fits the bill with its crypto presale and its proposed shake-up of crowdfunding and VC markets. Orbeon Protocol (ORBN) works by minting new business ventures into NFTs, which are then fractionalized. Every day investors can thus buy into the best new companies, while start-ups gain from an efficient route to funding.

Following the success of the initial stages, Orbeon Protocol (ORBN) is still available as part of its crypto presale. Investors can see the value of the company’s business proposition as a trailblazing and alternative funding platform. But it’s the additional benefits, such as a private investors club, and the ability to manage all their crypto business in one place, that marks Orbeon Protocol (ORBN) out as a candidate for best cryptos to buy now.

9. LuxWorld (LUX)

LuxWorld (LUX) is another great example of crossover in the crypto industry. Sure, there are other metaverses out there poised to take advantage of advances in Web3 technology – but LuxWorld (LUX) differentiates itself with pioneering “travel to earn” functionality. That cutting-edge approach also extends to impressive NFT collections, an immersive Social-Fi experience, establishing a green tourist community, and an excellent crypto presale offer.

LuxWorld (LUX) hits a lot of the right notes: NFTs, eco-tourism, GameFi, and the merging of real and virtual worlds. That helps to explain why it makes the cut for the best cryptos to buy now. LuxWorld (LUX)’s success to date with its crypto presale also highlights its appeal to investors, big brands, and gamers alike. LuxWorld (LUX) really looks like it’s going places!

10. Sandbox (SAND)

Sandbox (SAND) is perhaps the most well-known metaverse in the blockchain gaming industry, and that popularity puts it among the best cryptos to buy now. Blockchain gaming fans can create, manage and make money from their gaming experiences. Sandbox (SAND) gamers can purchase and develop virtual plots of land, and thereafter, the game is in their hands: renting out land, designing new games, or creating and trading NFTs are all potential revenue streams.

Sandbox (SAND) is well-placed to benefit from the predicted explosion in blockchain gaming and P2E. It has a proven product and the backing of big brands and household names, plus it offers a fun and immersive experience. Sandbox (SAND)’s durability, transparency, continuous development, income streams, high levels of fun, and DAO structure all commend it to investors.

The best cryptos to buy now: Metacade (MCADE) hits the high spot

All of the companies listed here could thrive and prosper in 2023. But it’s Metacade (MCADE) that triumphs in this analysis of the best cryptos to buy now. It wins out thanks to its stunning selection of games, its appeal to all sides of the blockchain gaming industry, its community-focused approach, and its potential to deliver high returns. The great value crypto presale is just the icing on the cake, but you need to act now to avail yourself of the best price.

You can find the best cryptos to buy now at eToro here.

You can participate in the Metacade crypto presale here.

The post Best cryptos to buy now for February 2023 appeared first on Invezz.

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Debate Continues On Whether Bitcoin Is A Suitable Hedge For Hyperinflation

Bitcoin, the world’s first decentralized digital currency, has been gaining traction in recent years as a potential hedge against hyperinflation in fiat…

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Bitcoin, the world’s first decentralized digital currency, has been gaining traction in recent years as a potential hedge against hyperinflation in fiat currencies. As the world’s reserve currency, the U.S. dollar has been the subject of much debate regarding its stability and potential vulnerability to hyperinflation.

As Coindesk explains, Twitter was ablaze with reactions to former Coinbase Chief Technology Officer Balaji Srinivasan accepting a bet proposed by James Medlock that, due to hyperinflation in the United States, a single bitcoin would be worth $1 million in just 90 days.

This prompted CoinDesk Chief Content Officer Michael J. Casey to discuss the future of bitcoin on the publication’s All About Bitcoin podcast. The discussion is an extension of Bitcoin suitability as an inflation hedge that has been raging ever since Satoshi Nakamoto first developed this novel form of currency.

In general, many proponents of Bitcoin argue that the cryptocurrency’s finite supply and decentralized nature make it a viable alternative to traditional currencies, while others remain skeptical of its ability to serve as a hedge against inflation.

The U.S. dollar has been the world’s reserve currency since the end of World War II, and its stability has been a cornerstone of the global financial system. However, the Federal Reserve has increased the money supply dramatically in recent years to stimulate the economy, leading some to worry about the potential for inflation.

The COVID-19 pandemic has also put pressure on the economy, causing Federal Reserve to again begin increasing its balance sheet after a brief period of quantitative tightening. This, in response to consumers pulling their money out of the banking system to the tune of $475 billion last week alone. According to the Fed’s updated balance sheet, approximately two-thirds of the Fed’s quantitative tightening program—a program designed to reduce its balance sheet which was a year in the making—has been reversed.

The overarching fear among many analysts is that with bond market inversion signaling the economy is headed into recession, and with the Fed Funds rate a five percent, the Federal Reserve will soon be forced to enact another round of quantitative easing.  Net interest payments on the debt are estimated to total $395.5 billion this fiscal year, or 6.8% of all federal outlays, according to the Office of Management and Budget. And this total is rising.

Quantitative easing (QE) is a monetary policy tool used by central banks to increase the money supply and encourage lending and investment. It involves the purchase of government securities or other assets by the central bank, which injects money into the economy and increases the amount of credit available to banks and other financial institutions.

Hyperflation And Bitcoin Debate

As mentioned off the top, the debate about whether Bitcoin can mitigate the effects of hyperinflation is a conversation that will continue to gain traction over time. This is due to fears that the money supply is again headed for a dramatic increase, due to the recent banking crisis which may require a massive influx or capital, upcoming recession support spending, higher interest payment of federal debt, and more.

Hyperinflation is a situation in which a country experiences a rapid and out-of-control increase in prices, often resulting in the collapse of its currency. It is usually caused by an excessive increase in the money supply, which reduces the currency’s purchasing power. This scenario is not hypothetical, as history has seen several instances of hyperinflation.

For example, Germany’s hyperinflation in the 1920s resulted in people burning money for fuel and using it as wallpaper, while Zimbabwe’s hyperinflation in the 2000s led to people using billion-dollar notes as napkins.

Bitcoin, on the other hand, has a finite supply of 21 million coins, with approximately 18.6 million already in circulation. This means that the supply of Bitcoin is limited and cannot be increased, theoretically making it immune to the effects of inflation caused by an increase in the money supply.

In addition, Bitcoin is decentralized, meaning that it is not controlled by any central authority, government, or financial institution. This makes it less vulnerable to the effects of political instability, such as hyperinflation caused by government mismanagement of the economy.

The Case Against Bitcoin As A Suitable (Hyper)Inflation Hedge

Some critics argue that Bitcoin is not a viable alternative to fiat currencies, including the U.S. dollar. They point out that Bitcoin’s price is highly volatile, with wild swings in value that make it difficult to use as a stable store of value. In addition, Bitcoin is not widely accepted as a means of payment, with only a small percentage of businesses accepting it as a form of payment. This limits its usefulness as a currency and makes it more difficult for individuals to use it as a hedge against inflation.

Another issue with Bitcoin as a hedge against hyperinflation is its lack of intrinsic value. While traditional currencies such as the U.S. dollar are backed by the government and have a certain amount of value due to their widespread acceptance, Bitcoin’s value is based solely on market demand. This makes it more vulnerable to market forces and less reliable as a long-term store of value.

It is worth noting in any conversation about Bitcoin vs. hyperinflation that its finite money supply does not guarantee that it will be a suitable inflation hedge. If governments are able to corral the gateways in which Bitcoin can be spent, acquired or transacted on, it is possible that transaction volume will never reach a critical mass to become a widescale alternative form of currency.

Despite these criticisms, many Bitcoin believers continue to purchase the cryptocurrency as a potential hedge against hyperinflation. Its decentralized nature and finite supply make it an attractive alternative to fiat currencies that are subject to political and economic instability. In addition, the increasing adoption of Bitcoin by businesses and individuals is making it more mainstream, which could further increase its value over time.

Given Bitcoin’s recent performance in the face of the U.S. banking calamity, there may be more believers than detractors give credit for.

The post Debate Continues On Whether Bitcoin Is A Suitable Hedge For Hyperinflation appeared first on The Dales Report.

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Southwest Airlines Wants to End a Major Passenger Problem

The company has a novel way to end a practice that passengers hate.

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The company has a novel way to end a practice that passengers hate.

Southwest Airlines boards its planes in a way very different from that of any of its major rivals.

As fans and detractors of the brand know, the airline does not offer seat assignments. Instead, passengers board by group and number. When you check into your flight, Southwest assigns you to the A, B, or C boarding groups and gives you a number 1-60. The A group boards first in numerical order.

DON'T MISS: Delta Move Is Bad News For Southwest, United Airlines Passengers

In theory, people board in the assigned order and can claim any seat that's available. In practice, the airline's boarding process leaves a lot of gray area that some people exploit. Others simply don't know exactly what the rules are.

If, for example, you are traveling with a friend who has a much later boarding number, is it okay to save a middle seat for that person?

Generally, that's okay because middle seats are less desirable, but technically it's not allowed. In general practice, if you move into the second half of the plane, no passenger will fight for a specific middle seat, but toward the front some may claim a middle seat.

There's less grey area, however, when it comes to trying to keep people from sitting in unoccupied seats. That's a huge problem for the airline, one that Southwest has tried to address in a humorous way.

A Southwest Airlines plane is in the air. 

Image source: Shutterstock

Southwest Airlines Has a Boarding Problem

When Southwest boards its flights it generally communicates to passengers about how full it expects the plane to be. In very rare cases, the airline will tell passengers when the crowd is small and they can expect that nobody will have to sit in a middle seat.

In most cases, however, at least since air travel has recovered after the covid pandemic, the airline usually announces that the flight is full or nearly full as passengers board. That's a de facto (and sometimes explicit) call not to attempt to discourage people from taking open seats in your row.

Unfortunately, many passengers know that sometimes when the airline says a flight is full, that's not entirely true. There might be a few no shows or a few seats that end up being open for one reason or another.

That leads to passengers -- at least a few of them on nearly every flight -- going to great lengths to try to end up next to an empty seat. Southwest has tried lots of different ways to discourage this behavior and has now resorted to humor in an effort to stop the seat hogs.

Southwest Uses Humor to Address a Pain Point

The airline recently released a video that addressed what it called "discouraged but crafty strategies to get a row to yourself" on Southwest. The video shows a man demonstrating all the different ways people try to dissuade other passengers from taking the open seats in their row.

These include, but are not limited to:

  • Laying out across the whole row.   
  • Holding your arm up to sort of block the seats.
  • Being too encouraging about someone taking the seat.
  • Actually saying no when someone asks if they can have an open seat. 

The airline also detailed a scenario it called "the fake breakup," where the person in the seat holds a loud phone conversation where he pretends he's being broken up with.

That one seems a bit of a reach, especially when Southwest left the most common seat-saving tactic out of its video -- simply putting some of your stuff in the open seat to make it appear unavailable.

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Das: Is A Full-Blown Global Banking Crisis In The Offing?

Das: Is A Full-Blown Global Banking Crisis In The Offing?

Authored by Styajit Das via NewIndianExpress.com,

If everything is fine, then why…

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Das: Is A Full-Blown Global Banking Crisis In The Offing?

Authored by Styajit Das via NewIndianExpress.com,

If everything is fine, then why are US banks borrowing billions at punitive rates at the discount window... a larger amount than in 2008/9?

Financial crashes like revolutions are impossible until they are inevitable. They typically proceed in stages. Since central banks began to increase interest rates in response to rising inflation, financial markets have been under pressure.

In 2022, there was the crypto meltdown (approximately $2 trillion of losses).

The S&P500 index fell about 20 percent. The largest US technology companies, which include Apple, Microsoft, Alphabet and Amazon, lost around $4.6 trillion in market value  The September 2022 UK gilt crisis may have cost $500 billion. 30 percent of emerging market countries and 60 percent of low-income nations face a debt crisis. The problems have now reached the financial system, with US, European and Japanese banks losing around $460 billion in market value in March 2023.

While it is too early to say whether a full-fledged financial crisis is imminent, the trajectory is unpromising.

***

The affected US regional banks had specific failings. The collapse of Silicon Valley Bank ("SVB") highlighted the interest rate risk of financing holdings of long-term fixed-rate securities with short-term deposits. SVB and First Republic Bank ("FRB") also illustrate the problem of the $250,000 limit on Federal Deposit Insurance Corporation ("FDIC") coverage. Over 90 percent of failed SVB and Signature Bank as well as two-thirds of FRB deposits were uninsured, creating a predisposition to a liquidity run in periods of financial uncertainty.

The crisis is not exclusively American. Credit Suisse has been, to date, the highest-profile European institution affected. The venerable Swiss bank -- which critics dubbed  'Debit Suisse' -- has a troubled history of banking dictators, money laundering, sanctions breaches, tax evasion and fraud, shredding documents sought by regulators and poor risk management evidenced most recently by high-profile losses associated with hedge fund Archegos and fintech firm Greensill. It has been plagued by corporate espionage, CEO turnover and repeated unsuccessful restructurings.

In February 2023, Credit Suisse announced an annual loss of nearly Swiss Franc 7.3 billion ($7.9 billion), its biggest since the financial crisis in 2008. Since the start of 2023, the bank's share price had fallen by about 25 percent. It was down more than 70 percent over the last year and nearly 90 percent over 5 years. Credit Suisse wealth management clients withdrew Swiss Franc 123 billion ($133 billion) of deposits in 2022, mostly in the fourth quarter.

The categoric refusal -- "absolutely not" -- of its key shareholder Saudi National Bank to inject new capital into Credit Suisse precipitated its end. It followed the announcement earlier in March that fund manager Harris Associates, a longest-standing shareholder, had sold its entire stake after losing patience with the Swiss Bank’s strategy and questioning the future of its franchise.

While the circumstances of individual firms exhibit differences, there are uncomfortable commonalities - interest rate risk, uninsured deposits and exposure to loss of funding.

***

Banks globally increased investment in high-quality securities -- primarily government and agency backed mortgage-backed securities ("MBS"). It was driven by an excess of customer deposits relative to loan demand in an environment of abundant liquidity. Another motivation was the need to boost earnings under low-interest conditions which were squeezing net interest margin because deposit rates were largely constrained at the zero bound. The latter was, in part, driven by central bank regulations which favour customer deposit funding and the risk of loss of these if negative rates are applied.

Higher rates resulted in unrealised losses on these investments exceeding $600 billion as at end 2022 at
Federal Deposit Insurance Corporation-insured US banks. If other interest-sensitive assets are included, then the loss for American banks alone may be around $2,000 billion. Globally, the total unrealised loss might be two to three times that.

Pundits, most with passing practical banking experience, have criticised the lack of hedging. The reality is that eliminating interest rate risk is costly and would reduce earnings. While SVB's portfolio's duration was an outlier, banks routinely invest in 1- to 5-year securities and run some level of the resulting interest rate exposure.

Additional complexities inform some investment portfolios. Japanese investors have large holdings of domestic and foreign long-maturity bonds. The market value of these fixed-rate investments have fallen. While Japanese short-term rates have not risen significantly, rising inflationary pressures may force increases that would reduce the margin between investment returns and interest expense reducing earnings.

It is unclear how much of the currency risk on these holdings of Japanese investors is hedged. A fall in the dollar, the principal denomination of these investments, would result in additional losses. The announcement by the US Federal Reserve ("the Fed") of coordinated action with other major central banks (Canada, England, Japan, Euro-zone and Switzerland) to provide US dollar liquidity suggests ongoing issues in hedging these currency exposures.

Banking is essentially a confidence trick because of the inherent mismatch between short-term deposits and longer-term assets. As the rapid demise of Credit Suisse highlights, strong capital and liquidity ratios count for little when depositors take flight.

Banks now face falling customer deposits as monetary stimulus is withdrawn, the build-up of savings during the pandemic is drawn down and the economy slows. In the US, deposits are projected to decline by up to 6 percent. Financial instability and apprehension about the solvency of individual institutions can, as recent experience corroborates, result in bank runs.

***

The fact is that events have significantly weakened the global banking system. A 10 percent loss on bank bond holdings would, if realised, decrease bank shareholder capital by around a quarter. This is before potential loan losses, as higher rates affect interest-sensitive sectors of the economy, are incorporated.

One vulnerable sector is property, due to high levels of leverage generally employed.

House prices are falling albeit from artificially high pandemic levels. Many households face financial stress due to high mortgage debt, rising repayments, cost of living increases and lagging real income. Risks in commercial real estate are increasing. The construction sector globally shows sign of slowing down. Capital expenditure is decreasing because of uncertainty about future prospects. Higher material and energy costs are pushing up prices further lowering demand.

Heavily indebted companies, especially in cyclical sectors like non-essential goods and services and many who borrowed heavily to get through the pandemic will find it difficult to repay debt. The last decade saw an increase in leveraged purchases of businesses. The value of outstanding US leveraged loans used in these transactions nearly tripled from $500 billion in 2010 to around $1.4 trillion as of August 2022, comparable to the $1.5 trillion high-yield bond market. There were similar rises in Europe and elsewhere.

Business bankruptcies are increasing in Europe and the UK although they fell in the US in 2022. The effects of higher rates are likely to take time to emerge due to staggered debt maturities and the timing of re-pricing. Default rates are projected to rise globally resulting in bank bad debts, reduced earnings and erosion of capital buffers.

***

There is a concerted effort by financial officials and their acolytes to reassure the population and mainly themselves of the safety of the financial system. Protestations of a sound banking system and the absence of contagion is an oxymoron. If the authorities are correct then why evoke the ‘systemic risk exemption’ to guarantee all depositors of failed banks? If there is liquidity to meet withdrawals then why the logorrhoea about the sufficiency of funds? If everything is fine, then why have US banks borrowed $153 billion at a punitive 4.75% against collateral at the discount window, a larger amount than in 2008/9? Why the compelling need for authorities to provide over $1 trillion in money or force bank mergers?

John Kenneth Galbraith once remarked that "anyone who says he won't resign four times, will". In a similar vein, the incessant repetition about the absence of any financial crisis suggests exactly the opposite.

***

The essential structure of the banking is unstable, primarily because of its high leverage where around $10 of equity supports $100 of assets. The desire to encourage competition and diversity, local needs, parochialism and fear of excessive numbers of systemically important and 'too-big-to-fail' institutions also mean that there are too many banks.

There are over 4,000 commercial banks in the US insured by the FDIC with nearly $24 trillion in assets, most of them small or mid-sized. Germany has around 1,900 banks including 1,000 cooperative banks, 400 Sparkassen, and smaller numbers of private banks and Landesbanken. Switzerland has over 240 banks with only four (now three) major institutions and a large number of cantonal, regional and savings banks.

Even if they were adequately staffed and equipped, managers and regulators would find it difficult to monitor and enforce rules. This creates a tendency for 'accidents' and periodic runs to larger banks.

Deposit insurance is one favoured means of ensuring customer safety and assured funding. But that entails a delicate balance between consumer protection and moral hazard - concerns that it might encourage risky behaviour. There is the issue of the extent of protection.

In reality, no deposit insurance system can safeguard a banking system completely, especially under conditions of stress. It would overwhelm the sovereign's balance sheet and credit. Banks and consumers would ultimately have to bear the cost.

Deposit insurance can have cross-border implications. Thought bubbles like extending FDIC deposit coverage to all deposits for even a limited period can transmit problems globally and disrupt currency markets. If the US guarantees all deposits, then depositors might withdraw money from banks in their home countries to take advantage of the scheme setting off an international flight of capital. The movement of funds would aggravate any dollar shortages and complicate hedging of foreign exchange exposures. It may push up the value of the currency inflicting losses on emerging market borrowers and reducing American export competitiveness.

In effect, there are few if any neat, simple answers.

***

This means the resolution of any banking crisis relies, in practice, on private sector initiatives or public bailouts.

The deposit of $30 billion at FRB by a group of major banks is similar to actions during the 1907 US banking crisis and the 1998 $3.6 billion bailout of hedge fund Long-Term Capital Management. Such transactions, if they are unsuccessful, risk dragging the saviours into a morass of expanding financial commitments as may be the case with FRB.

A related option is the forced sale or shotgun marriage. It is unclear how given systemic issues in banking, the blind lending assistance to the deaf and dumb strengthens the financial system. Given the ignominious record of many bank mergers, it is puzzling why foisting a failing institution onto a healthy rival constitutes sound policy.

HSBC, which is purchasing SVB's UK operations, has a poor record of acquisitions that included Edmond Safra's Republic Bank which caused it much embarrassment and US sub-prime lender Household International just prior to the 2008 crisis. The bank's decision to purchase SVB UK for a nominal £1 ($1.20) was despite a rushed due diligence and admissions that it was unable to fully analyse 30 percent of the target's loan book. It was justified as 'strategic' and the opportunity to win new start-up clients.

On 19 March 2023, Swiss regulators arranged for a reluctant UBS, the country's largest bank, to buy Credit Suisse after it become clear that an emergency Swiss Franc 50 billion ($54 billion) credit line provided by the Swiss National Bank was unlikely to arrest the decline. UBS will pay about Swiss Franc 0.76 a share in its own stock, a total value of around Swiss Franc 3 billion ($3.2 billion). While triple the earlier proposed price, it is nearly 60 percent lower than CS’s last closing price of Swiss Franc1.86.

Investors cheered the purchase as a generational bargain for UBS. This ignores Credit Suisse's unresolved issues including toxic assets and legacy litigation exposures. It was oblivious to well-known difficulties in integrating institutions, particularly different business models, systems, practices, jurisdictions and cultures. The purchase does not solve Credit Suisse's fundamental business and financial problems which are now UBS’s.

It also leaves Switzerland with the problem of concentrated exposure to a single large bank, a shift from its hitherto preferred two-bank model. Analysts seemed to have forgotten that UBS itself had to be supported by the state in 2008 with taxpayer funds after suffering large losses to avoid the bank being acquired by foreign buyers.

***

The only other option is some degree of state support.

The UBS acquisition of Credit Suisse requires the Swiss National Bank to assume certain risks. It will provide a Swiss Franc 100 billion ($108 billion) liquidity line backed by an enigmatically titled government default guarantee, presumably in addition to the earlier credit support. The Swiss government is also providing a loss guarantee on certain assets of up to Swiss Franc 9 billion ($9.7 billion), which operates after UBS bears the first Swiss Franc 5 billion ($5.4 billion) of losses.

The state can underwrite bank liabilities including all deposits as some countries did after 2008. As US Treasury Secretary Yellen reluctantly admitted to Congress, the extension of FDIC coverage was contingent on US officials and regulators determining systemic risk as happened with SVB and Signature. Another alternative is to recapitalise banks with public money as was done after 2008 or finance the removal of distressed or toxic assets from bank books.

Socialisation of losses is politically and financially expensive.

Despite protestations to the contrary, the dismal truth is that in a major financial crisis, lenders to and owners of systemic large banks will be bailed out to some extent.

European supervisors have been critical of the US decision to break with its own standard of guaranteeing only the first $250,000 of deposits by invoking a systemic risk exception while excluding SVB as too small to be required to comply with the higher standards applicable to larger banks. There now exist voluminous manuals on handling bank collapses such as imposing losses on owners, bondholders and other unsecured creditors, including depositors with funds exceeding guarantee limit, as well as resolution plans designed to minimise the fallout from failures. Prepared by expensive consultants, they serve the essential function of satisfying regulatory checklists. Theoretically sound reforms are not consistently followed in practice. Under fire in trenches, regulators concentrate on more practical priorities.

The debate about bank regulation misses a central point. Since the 1980s, the economic system has become addicted to borrowing-funded consumption and investment. Bank credit is central to this process. Some recommendations propose a drastic reduction in bank leverage from the current 10-to-1 to a mere 3-to1. The resulting contraction would have serious implications for economic activity and asset values.

In Annie Hall, Woody Allen cannot have his brother, who thinks he is a chicken, treated by a psychiatrist because the family needs the eggs. Banking regulation flounders on the same logic.

As in all crises, commentators have reached for the 150-year-old dictum of Walter Bagehot in Lombard Street that a central bank's job is "to lend in a panic on every kind of current security, or every sort on which money is ordinarily and usually lent."

Central bankers are certainly lending, although advancing funds based on the face value of securities with much lower market values would not seem to be what the former editor of The Economist had in mind. It also ignores the final part of the statement that such actions "may not save the bank; but if it do not, nothing will save it."

Banks everywhere remain exposed. US regional banks, especially those with a high proportion of uninsured deposits, remain under pressure.

European banks, in Germany, Italy and smaller Euro-zone economies, may be susceptible because of poor profitability, lack of essential scale, questionable loan quality and the residual scar tissue from the 2011 debt crisis.

Emerging market banks' loan books face the test of an economic slowdown. There are specific sectoral concerns such as the exposure of Chinese banks to the property sector which has necessitated significant ($460 billion) state support.

Contagion may spread across a hyper-connected financial system from country to country and from smaller to larger more systematically important banks. Declining share prices and credit ratings downgrades combined with a slowdown in inter-bank transactions, as credit risk managers become increasingly cautious, will transmit stress across global markets.

For the moment, whether the third banking crisis in two decades remains contained is a matter of faith and belief. Financial markets will test policymakers' resolve in the coming days and weeks.

Tyler Durden Sat, 03/25/2023 - 10:30

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