Second Wave Of Banking Crisis Incoming, Crash Could Be Worse Than 2008 Global Financial Crisis, Says Expert

Bank of England in the City of London on the day that the interest rate was raised by 0.5 percentage points to 5% on 22nd June 2023 in London, United Kingdom. Macroeconomic expert George Gammon says that a significant rise in bank borrowing from the Federal Home Loan Bank (FHLB) system and the recently established Bank Term Funding Program (BTFP) is compelling evidence of another potential wave of banking failures. PHOTO BY MIKE KEMP/GETTY IMAGES 

Macroeconomic expert George Gammon says that a significant rise in bank borrowing from the Federal Home Loan Bank (FHLB) system and the recently established Bank Term Funding Program (BTFP) is compelling evidence of another potential wave of banking failures.

In a YouTube video on Thursday, Gammon said the latest numbers from the Federal Reserve Economic Data (FRED) system, which show sharp and ongoing rises in borrowing from the FHLB and BTFP, signal that the banking crisis is far from over.

“We know that the banking crisis is far from over because the chart of the advances of the FHLB is still extremely high and going even higher. We can also combine this with the BTFP being extremely high, and it hasn’t come down yet,” he said. 

A crucial factor to monitor is the Federal Reserve’s discount window, an emergency lending program designed to provide short-term loans to banks, the macroeconomic expert said. A sharp increase in the discount window utilization would essentially indicate to the market that the banks resorting to this program are in a dire financial situation, he explained. 

Traders work on the floor of the New York Stock Exchange during morning trading on March 13, 2023 in New York City.  A crucial factor to monitor is the Federal Reserve’s discount window, an emergency lending program designed to provide short-term loans to banks, the macroeconomic expert said.  PHOTO BY MICHAEL M.SANTIAGO/GETTY IMAGES

“We get the next wave of a banking crisis by combining those two (FHLB and BTFP) charts with a chart of the discount window. And once you see that shoot up, you know that over the next few weeks, over the next few months, it’s very likely that you see more of these banks go bust, possibly taking us into an environment that is very similar or even worse than the global financial crisis,” he said. 

“When the troubled banks need liquidity, their first option, because it’s way cheaper, is going to be the marketplace. The repo market is an example. But they’re very sophisticated lenders, so banks go to their next best option, which would be the FHLB, but they really hesitate to do that because, although it’s this stealth bailout, it is very expensive, and the terms quite often are very draconian,” Gammon added. 

In May, macro guru and hedge fund manager Hugh Hendry shared his views on the U.S. banking system, saying that the Federal Reserve’s monetary policy had increased the probability that banking customers could one day face restrictions on the amount of cash they can withdraw.

Produced in association with Benzinga

Edited by Saba Fatima and Newsdesk Manager