The United States banking system is in trouble as over 2,300 financial institutions could have more liabilities than assets, recent analysis reveals. Subsequently, analysts say this could boost Bitcoin prices in the weeks and months ahead if the government doesn’t proceed carefully.
US Banks Burning Through Capital Buffers
The US Treasury and Federal Reserve say that the problems are peculiar to just individual banks, but experts are warning that the situation is much worse than the government admits.
With the anti-inflationary measures in place, almost half of America’s 4,800 banks are burning through their capital buffers, and there is still more tightening to come from the Fed.
The full effect of monetary tightening by the Fed has yet to hit the economy, and only then would experts know whether the United States financial system will be able to safely deflate the excess leverage induced by extreme monetary stimulus during the pandemic between 2020 to 2021.
The White House did not offer a blanket guarantee for all deposits because that would look like social welfare for the rich. Besides, the Federal Deposit Insurance Corporation (FDIC) reportedly has only $127 billion of assets and may require its own bailout.
For that reason, financial institutions are now pressuring the United States Securities and Exchange Commission to crack down on short-selling strategies that profit when bank stocks slide.
Lindsey Johnson, CEO of the Consumer Bankers Association, urged policymakers to take a serious look at the financial havoc wreaked by short-sellers.
Bank Failures Could Drive Bitcoin Prices
The turmoil in the banking industry is a concern for the Biden administration. If thousands of banks in the United States were to fail, it is possible that some investors could turn to Bitcoin as a way to protect their assets.
With the Biden administration’s stance on cryptocurrencies, any action that places the banking system in jeopardy could drive Bitcoin prices higher, even above $40,000.
The SEC is not currently contemplating any ban on short-selling bank stocks, according to a senior agency official.
In 2008, the SEC called time-out on short-selling on nearly 1,000 financial stocks in a bid to restore faith in public markets. However, the New York Fed later found that the ban did little to stem the financial stock market that was flaying out of control.
Another study discovered that most of the stocks protected by the ban lost the citizens’ confidence, suffering “a severe degradation” in market quality, price impact, and volatility.
As financial institutions press the SEC to take action against short-sellers, and their role in the market, which is impacting Americans’ confidence in the financial system. Yet, any careless moves to pull the pin could create more fissures, possibly buoying crypto and bitcoin prices.