Two comments reported today by the Washington Post break through the “all-clear for U.S. banks” nonsense of recent financial media coverage and inane Congressional remarks. Although the Post article is on commercial real estate and CMBS (commercial mortgage-backed securities) defaults, which are piling up, the comments are on banks.
Treasury Secretary Janet Yellen, in a television appearance only identified as “earlier this month,” said, “Banks are broadly preparing for some restructuring and difficulties going forward.” And the ubiquitous Mark Zandi, chief economist of Moody’s Analytics, is quoted about the commercial real estate loans and securities and “the odds that they aren’t going to be able to pay back those loans in a timely way. That means losses will start to mount. And because the banking and financial system more broadly is already struggling with lots of other problems … there’s going to be more banking failures.”
Unmentioned by either one, is that the U.S. federal debt rose by a huge $572 billion in two weeks following President Biden’s signing the legislation to lifting of the “debt ceiling” on June 3. Treasury interest rates rose sharply; while the 10-year rate is much watched and has risen only gradually, the 2-year Treasury note rate has risen at a pace which would be +1% per month if continued, and is a full 1% above the 10-year rate. These rate jumps continue to threaten banks throughout the U.S. system because of unrealized losses in their capital and reserves.
