Kind: captions
Language: en
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Valley bank now there is fourth bank
that is also threatened with the same
problem First Republic Bank now this has
once again sparked fears of the banking
crisis that hit America lately and
further raise fears of a full-blown
banking failure such as at the beginning
of 2008 great presentation
I have explained the differences between
the current crisis and 2008 great
recessions in the previous video however
the video was only published in Bahasa
Indonesia in this video however I try to
make it in two languages one in Barca
Indonesia for those interested in Baza
Indonesia you may want to check
in the Link Card above now this video
once again reiterates my argument on
this matter that this crisis is actually
different than what happened in 2008.
now let's discuss one by one on the
analysis circulating in social media
regarding the main course or the
bankruptcy of this American Regional
Banks
first analysis
is the cause of silvergate's signature
and svb's bankruptcy was due to the
fractional Reserve banking system
the camp that addressed to this view
usually comes from the crypto community
this is understandable because Bitcoin
itself was born as a reaction to the
failure of the fractional Reserve
banking system back in 2008 Great
Recession I will try to explain this
fractional Reserve banking system in a
simple way so that all of you can also
understand the banking system adopted by
everyone in the world these days
now let's say there is NB
he deposited his money ten thousand
dollars in Bank X
then comes Brian he borrows money from
Bank X and Bank eggs lend him nine
thousand dollars which is actually came
from Andy's deposit Brian then used the
money he borrowed in a month or nine
thousand dollars to buy a car from
Charlie and Charlie put the money from
the sale of his car to bank X the total
balance of Bank X is now nineteen
thousand dollars
then came Diana who wanted to borrow
money from the bank and the bank then
lent her eight thousand one hundred
dollars out of Tally's savings
see then use the money to buy a machine
from Andy and Eddie then kept the money
from his revenue of eight thousand one
hundred dollars back in Bank X
banking's total balance now is uh ten
thousand dollars from Andy's savings
nine thousand from Charlie savings and
eight thousand one hundred dollars of NB
savings which add up a total twenty
seven thousand one hundred dollars
in fact do you remember that the real
cash is actually only ten thousand
dollars
and we're gonna call this ten thousand
dollars as m0 the real cash real
physical cash meanwhile assuming all
savings including Andy
tally and Eddie are ordinary savings
that can be withdrawn at any time by
them the total balance now will be
twenty seven thousand one hundred
dollars and we're gonna call this twenty
seven thousand one hundred dollars as m
one
if later Bank age uses a portion of this
M1 to infest for example ten thousand
dollars in government bonds in this
regard for instance U.S treasury bonds
then now the money supply becoming total
and one of twenty seven thousand one
hundred dollars plus ten thousand from
the treasury and now the total money in
circulation becoming thirty seven
thousand one hundred dollars and now
we're gonna call this 37 100 as M2 if
you notice the total money supply is
already increased 271 percent above m0
or real actual physical cast that came
from Andy's original deposit fractional
Reserve banking or frb is the magic of
the modern banking world with this
system the economy can move much faster
because the money supply is much larger
than the accessing physical money or
real cash that's the positive side but
if you pay attention carefully the this
is called Leverage and leverage always
contain risk what if for some kind of
reason
Andy entirely and Eddie at the same time
suddenly we draw their fans otherwise
known as Bank Run bang X certainly
doesn't have sufficient cash to pay Andy
Charlie and Eddie all at once a very
shocking situation for all depositors
where the amount of cash available in
their bank is actually
insufficient at this moment you may
start wondering does it means that if
all depositors of all the banks in the
world withdraw their money at the same
time then the available money in the
banks will not be sufficient
the answer is unfortunately yes
it is theoretically true but the
question is why suddenly a Bank's
customer simultaneously withdraw their
funds all at once the answer is because
there is a crisis of trust for some kind
of reasons the Bank's customer feel it
is no longer safe to keep their money in
the bank anymore
if the fractional Reserve banking system
is the sole cause for the bankruptcy of
silvergate signature and Silicon Valley
bank then why in the svb case svb
customers flop to withdraw their funds
from svb as well as other Regional Banks
and transfer them to much much bigger
National Banks such as JPMorgan Citibank
Morgan Stanley Bank of America Wells
Fargo and other banks with some much
much bigger than svb there is even a
term for this and this is called flight
to Quality if fractional Reserve banking
is the only cause of silvergate
signature and svb's value then why
flight to Quality other Banks should
also have the same potential risk which
is frb but why do these Regional based
customers put their funds back into
other banks that also use the same
potential problematic fractional Reserve
banking system clearly fractionalism
banking system is not the main reason
that caused 2023 banking crisis so now
let's move to the second analysis second
analysis the cause of svb and Regional
Banks bankruptcy was because the fat
risk the fat fund rate very aggressively
now back in 2020
in plain view svb and Regional banks in
America since the FED implemented
quantitative easing in 2020 to prevent
economic freeze due to the covid-19
pandemic have experienced a very large
increase in the flow of funds in the
case of svb the growth of tax startups
funded by Financial capitals resulted in
svb growing enormously rapidly
it is not coincidence both svb and Tech
startups are mainly located in Silicon
Valley svb then invest These funds in
U.S 30 years treasury bonds which is the
safest investment in the world in
contrast to 2008 Lehman Brothers in
person is found in high-risk assets
namely the mortgage-backed security
called CDO generated from subprime
mortgage which we all know later
becoming defaulted you are of course
asking if svb invests in high quality
bonds
then how come it went bankrupt
the answer is because in 2020 to 2021
period U.S treasury bonds have very
small interest
which was actually not a problem because
at maturity svb will get back the
principle along with the interest
however in 2022 the FED is Raising
interest rate aggressively within one
year the FED has raised interest rate
from 0.25 to
4.75 the fastest rate high since 1980.
If the Fed height the interest rate then
the U.S the TS treasury bonds helped by
svb will decrease in value because
everyone now will start thinking why buy
government bonds from svb well if they
just buy it from the treasuries they
will definitely get much higher coupon
please remember that the decline in the
value of Treasury Bonzer sets owned by
svb is actually unrealized loss and
therefore it did not need to be recorded
in the financial statement
until they were forced to sell it
this is because if these bonds are held
by svb until maturity then they will get
back the whole principle along with the
interest resulting no loss at all in
fact they make some money
however
the problem was started when the fat
raised interest rates and there was so
many troubled startups
forcing them to withdraw their funds for
example to pay severance pay for the
employees because they were forced to
lay off hundreds of even thousands of
workers now remember the frb principle I
explained at the beginning when there is
a massive withdrawal of funds the cash
funds available at the bank the m0 of
course will not be sufficient M1 is
always much bigger than m0 this made as
we be forced to place all of its
treasury bonds assets in ASF or asset
for sale status and this was done when
the value of the treasury bonds has
dropped significantly since the early
svb was forced to cut loss and in the
case of svb this has increasingly
triggered all other svb customers to
withdraw funds in large numbers svb then
collapsed this second analysis is the
most widely circulated in mainstream
media social media among startup
activists and Society in general and now
we come to the third analysis the
deregulation of the Dodd-Frank Act
during Donald Trump presidency
even though it sounds the most political
from all the three analysis in my
opinion this is the most logical one
after the 2008 crisis Senator Barack
Obama succeeded in becoming president to
replace George W bush during the two
periods of this tenure
there were many reforms he made
one of them is the Dodd-Frank Wall
Street reform and consumer protection
act
through the Dodd-Frank and Obama laid a
very solid foundation for the American
banking system and at the same time
restored Financial stability
with his new law the FED is required to
impose a series of very strict stress
tests on all banks with assets about 50
billion dollars every single year
the aim is that if a crisis occurs all
these banks will have sufficient cash
funds if customers withdraw their funds
on a large scale
however the Dodd-Frank Act was silenced
by several Banks owners who tried to
Lobby Congress to provide concessions
the strict rules contained in the
Dodd-Frank Act made it difficult for
them for the regional Banks to grow
especially if they had to compete with
giant Banks
gregbecker the CEO of Silicon Valley
Bank is one of those who has 4 seriously
for this deregulation proposal
in 2017 Donald Trump replaced Obama and
became the 45th president of America
during the Trump administrations there
were many regulations that were born
under Obama which were then amended
again
the Dodd-Frank Ang unfortunately is one
of them on May 24 2018 Trump signed a
new law which in principle wrote back
the Dodd-Frank Act on bank with the sets
below 250 billion dollars
since then all regional banks with a set
below 250 billion dollars are no longer
required to undergo the annual stress
test by the FED as stated in the
dot-frame ACT that's why if you see why
the American banks that currently in
trouble are only the regional banks with
an asset value of under 250 billion
dollars a group of banks that have never
been conducting stresses since May 24
2018. the day the bill was signed by
Donald Trump
this trans Regional Banks deregulation
policy reminds me of the indonesian's
monetary crisis took places in 1998.
if many of us Indonesians complains
about the exchange rates of the rupiah
against the U.S dollars it was in this
year in this particular year that the
value of the rupiah dropped drastically
within just few months the US dollar
since rates shot up from 2 380 rupiah
per dollar to 16 650 rupiah per dollar
there was 16 Banks closing the period of
1997 1998 38 banks in 1999 and three
more Banks were liquidated in
2004-2005. there are many analysis of
the crisis of confidence that occurred
at this time however if we look back in
our history
1988 bang Indonesia our Central Bank
launched something called
October 1988 and we call it pacto 88.
one of the fundamental basic Provisions
in Pato 88 was that it was easier to
establish a national private bank with
only a minimum capital of 10 billion
rupees or around 4.2 million dollars
during that time everyone can establish
a Commercial Bank
as for the establishment of people's
credit bank or Bank per credit
BPR a minimum capital of only 50 million
rupians or around twelve thousand
dollars only
should be sufficient history proves that
facto 88 was actually a time bomb that
exploded 10 years later that was during
the 1998 crisis this is I believe the
time when America should be humble and
start learning from Indonesia's history
be careful with the deregulation of the
banking system
the fractional Reserve banking system
itself has already contained very high
leverage on the macroeconomic carried
out through the monetary world all
levels naturally contains risk and the
only way too many species is through
regulation
so now
we come to the conclusion
currently there are three opinions about
the causes of bankruptcy of these
Regional banks in America Silver Eagle
Bank Signature Bank and Silicon Valley
Bank
the first is fractional Reserve banking
the second is because the fair Trace
interested aggressively and the third is
because of the deregulation of regional
Banks under Donald Trump
all three are certainly influential but
in your opinion out of these three
which has the most influence in causing
the bankruptcy failure of the regional
banks in America that happened lately
let's discuss it in the comment section
below and by the way
this is the first time I made video in
English so I do apologize for any
mispronunciation or grammatical error
English is not my main language
thank you so much for watching this
video hope you all enjoyed this video
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bye bye
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