Now that the big banks have been given a no-ceiling deposit guarantee, the smaller banks need to be given the same guarantee before all their big deposits are transferred to the guaranteed banks. And so the contagion spreads.
Another 50 regional banks in the US could fail in the US banking crisis if authorities do not take immediate action to resolve structural issues in the sector, according to former vice-president at Lehman Brothers Lawrence McDonald, in an interview with RIA Novosti.
He said, “Policy-makers will most likely be forced to introduce a much larger withholding to maintain outflows of deposits from bank accounts that significantly exceed $250,000.”
The global financial crisis of 2008 began with the collapse of Lehman Brothers, which seized up funding markets, and prevented global lenders from getting ahold of US dollars.
McDonald says the problems today are very similar to the problems which preceded the collapse of Lehman and triggered the 2008 financial crisis.
He added that now it is expected US regional banks will lose “hundreds of billions of dollars” in deposits, as those funds are moved out to larger lenders believed to be “too big to fail,” as well as more secure US Treasuries.
He noted US authorities will have to massively increase the guarantees to US deposits over the present guarantees.
They can methodically merge all the banks that fail with the survivors until there is only one massive bank. But what will they do when that one final bank finally, and inevitably, fails. Because the problem is systemic, no credit system can survive indefinitely as the math guarantees its eventual failure.