Hedge fund manager and macro economic expert Hugh Hendry says the government may freeze new bank withdrawals as currency panic sets in.
In a new interview on Bloomberg Markets, Hendry says mass panic and capital flight away from the US banking sector is entirely justified.
Hendry says a further decline in the M2 money supply, which in part tracks money in liquid checking accounts, could convince the US government to step in and prevent citizens from taking their capital out of the banking system.
“Sometimes it’s kind of relevant to panic. I would recommend you panic… You’ve seen the biggest waterfall decline in M2 right now. M2 is deposits, not loans. That’s the deposits fleeing the system and going into money market funds.
That could reach a crescendo where the Treasury and the Fed may have to come in and actually restrict your right as a US citizen to pull money out of the US banking sector.”
“There is capital flight, deposit flight from the banking sector seeking yield. I fear that, I don’t say this lightly, but in 1934 the Federal Reserve Act confiscated gold from US citizens.
We’re at the point where the Fed and Treasury officials I’m sure are having to consider a gate a lock on US bank deposits.”
Hundry says that Bitcoin may actually be an asset class that has the potential to fight this banking crisis today.
“I’ve not got the bug, but Bitcoin is something I could conceive as an asset class that could trade three or four times higher in the next five years. There is no other asset class that I could make that determination.”
Which Banks Are Freezing Bank Accounts?
The New York City (NYC) Banking Commission is freezing new bank deposits at Capital One (NYSE:COF) and KeyBank.
Following the first-ever public hearing held by the New York City Banking Commission on Thursday, all three members voted to freeze deposits at Capital One and KeyBank after the banks failed to submit required plans demonstrating their efforts to root out discrimination.
JPMorgan had a similar occurrence when the bank began to freeze customer bank accounts in its latest scandal.
Republican attorneys general from 19 states say the bank is “persistently” discriminating against its own clients and closing bank accounts without warning.
However, Capital One’s story is a little different.
New York City Comptroller Brad Lander, one of three members of the Commission, also voted against designating three other banks to hold public funds: International Finance Bank, PNC Bank, and Wells Fargo, per New York City’s Comptroller press release.
“Banks seeking to do business with New York City must demonstrate that they will be responsible managers of public funds and responsible actors in our communities,” said Comptroller Brad Lander.
“Unfortunately, despite several opportunities to do so, five banks failed to comply with the New York City Banking Commission’s designation process – leaving us to conclude that they are not taking meaningful actions to combat discrimination in their operations and are not responsible stewards of public dollars.
Americans Are Withdrawing Their Money Fast
A new study shows that Americans pulled $472bn from big banks, more than the $100 billion priorly reported.
“First-quarter 2023 deposits dropped a record amount across U.S. banks — the steepest fall since the Federal Deposit Insurance Corp. starting collecting the data in 1984.
The $472 billion outflow in deposits outpaced the drop that banks saw following 2008 financial crash,” says Boston Business Journal.
This shatters a 39-year record.
The “primary driver” of deposit flight came from uninsured deposits, says the FDIC, as people moved to protect capital that is above the $250,000 FDIC insured maximum.
However, online-only banking models have become a big competitor to traditional banks.
So much in fact that big banks have begun to close several branches across the country.
In Philadelphia, Wells Fargo has closed 17% of its local bank branches since 2020.
PNC is not far behind, shuttering 15% of its branches in the Philadelphia area, per the Philadelphia Business Journal.
As depositors leave the banking system, money market funds have witnessed massive weekly cash inflows.
Other banks have begun to freeze bank deposits and new bank accounts.
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