US Effectively Nationalizes Banking System

The beauty of Bitcoin is that it doesn’t need a marketing team: governments, central banks, banks and regulators have been giving Bitcoin free promotion in recent months (and years), showing why it needs a state-independent money system. And the bankruptcy of First Republic Bank and its state-sponsored takeover by JP Morgan reinforces the case for Bitcoin once again.

At least that’s the thesis of Arthur Hayes, co-founder of BitMEX, and he’s not alone. Via Twitter, Hayes wrote: “This JPM / FRC deal means the US regulators decided to nationalize the banking system.”

The Case For Bitcoin Grows

The analysts at The Kobeissi Letter have drawn attention to the magnitude of the government subsidy for JP Morgan, which under current law should not have taken over FRC at all. JP Morgan was already the largest bank by deposits in the U.S. prior to the FRC deal, holding over 16%.

Percentage of Deposits Controlled by US Banks:

1. JP Morgan: 16.1%
2. Bank of America: 14.8%
3. Wells Fargo: 10.9%
4. Citibank: 5.8%
5. US Bank: 3.4%
6. Truist: 3.4%
7. PNC Bank: 3.3%
8. TD Bank: 2.9%
9. Charles Schwab: 2.7%
10. Capital One: 2.6%

The top 15 banks control 75% of…

— The Kobeissi Letter (@KobeissiLetter) April 30, 2023

Most shockingly, the banking giant has announced that the acquisition of First Republic will generate a one-time profit of $2.6 billion. In addition, they expect to make a profit of over $500 million per year from the deal. All this is happening while the FDIC is covering $13 billion in losses and providing $50 billion in funding.

“You’re witnessing the product of a flawed system,” The Kobeissi Letter writes. Ultimately, the Fed is afraid that more banks will fail. U.S. regulators want to make sure First Republic’s acquisition goes smoothly to avoid eroding trust in the banking system (and a confidence boost for Bitcoin).

The big banks like JP Morgan pretend that they saved the day. However, JP Morgan’s takeover of First Republic was entirely for their own benefit. They will make $5.1 billion in profits in 5 years. “Why would the big banks ever want the crisis to end?”, the analysts argue.

In that sense, Caitlin Long, founder and CEO of crypto-friendly Custodia Bank, is also offering harsh criticism:

THE TOO-BIG-TO-FAIL BANKS get too-bigger-er-to-fail. JPM got govt indemnities to buy FRC & its stock price is up in the pre-mkt. Yet again, watch what the federal bank regulators actually do, not what they say. They really really love their TBTF banks, despite saying otherwise.

US Regulators “Nationalize” The US Banking System

And the U.S. banking crisis is far from over. The stock prices of numerous regional banks fell heavily once again yesterday.

US Regional Bank Stocks Today:

1. Valley National, $VLY: -20%
2. Metropolitan Bank, $MCB: -18%
3. HomeStreet Bank, $HMST: -18%
4. HarborOne, $HONE: -11%
5. PacWest, $PACW: -10%
6. Citizens Financial, $CFG: -7%
7. Zions Bank, $ZION: -4%
8. KeyCorp, $KEY: -4%
9. M&T Bank, $MTB:…

— The Kobeissi Letter (@KobeissiLetter) May 1, 2023

Arthur Hayes believes that more banks will collapse. The big beneficiaries will be TBTF banks, which the BitMEX founder says are effectively nationalized because they have a government lien on their entire deposit base.

“They will not be allowed to fail regardless of decisions they make. Socialized losses, privatized gains, it’s a great deal but…” writes Hayes, who claims that the eight TBFT banks will have to absorb any other banks that can’t cope with the current market environment of too-fast increased interest rates.

According to the BitMEX founder, the government will make other exemptions, just as the OCC lifted deposit concentration limits and the FDIC loaned $50 billion to JP Morgan to push them into the takeover. But a deal will always be made, Hayes predicts.

If you aren’t one of the 8 TBTF banks you are fucked as long as inflation is sticky at these high levels and possibly rising. […]

Due to the US debt ceiling debacle, no banks can get bailed out by the govt. This is the perfect point of political paralysis to capitalize on another probably several non-TBTF banks getting deaded by the FDIC.

At press time, the Bitcoin price was at $27,998.

Featured image from iStock, chart from TradingView.com