#Are American Banks Technically Close To Bankruptcy?

According to reports, Nouriel Roubin, a well-known economist who is opposed to cryptocurrencies, interrupted in a recent MarketWatch column that most American banks are technically close to bankruptcy, and hundreds of American banks have become completely insolvent in terms of capital quality, Rising inflation reduces the true value of bank liabilities (deposits) by increasing banks’ “deposit franchises” (assets that are not on their balance sheets). The experience of U.S. regional banks such as Silicon Valley Bank shows that deposit stickiness cannot be guaranteed. When banks sell securities to meet withdrawal needs, unrealized securities losses become reality, leading to bankruptcy. （cryptoglobe）

“Dr. Doomsday” Nouriel Roubini: Most American banks are technically close to bankruptcy

##Introduction
The stability of the American financial system has been under the microscope for quite some time. Despite the efforts taken by regulators to maintain and improve the system’s resilience, recent reports have raised concerns about the sustainability of American banks. Noted economist Nouriel Roubin has drawn attention to the fact that most American banks are currently teetering on the edge of bankruptcy. Roubin claims that hundreds of banks in the country have already become insolvent due to rising inflation that is reducing the true value of bank liabilities leading to the increase of their ‘deposit franchises’ (assets that are not on their balance sheets).

The Banking Landscape in America

The American banking sector comprises of various types of banks, from commercial banks to credit unions and savings institutions. Financial regulators like the Federal Reserve and the Federal Deposit Insurance Corporation (FDIC) ensure the safety and soundness of banks in the United States. These regulatory bodies maintain certain standards for bank capital adequacy, liquidity, and risk management to ensure financial stability.

Inflation and Bankruptcy

The rise in inflation has negatively affected the American banking system. As inflation rises, the true value of bank liabilities diminishes, reducing the banks’ ability to pay off their debts. This situation results in a condition where the money owed by the banks exceeds their current worth. Inflation also increases the banks’ deposit franchises (assets that are not on their balance sheets), causing them to become even more vulnerable to the effects of inflation.

Case Study: Silicon Valley Bank

Experiences of U.S. regional banks such as Silicon Valley Bank exemplify how deposit stickiness cannot be guaranteed. A sudden increase in withdrawal needs forces the banks to sell securities to meet those needs. However, when banks do this, they face the risk of incurring realized securities losses, which can spell disaster for their capital.

Insolvency Among American Banks

According to Nouriel Roubin, hundreds of American banks have already become completely insolvent as a result of their capital’s diminished quality. This suggests that most American banks are not far from bankruptcy and are technically close to it.

The Role of Cryptocurrencies

While not everyone agrees with the potential of cryptocurrencies, some have suggested that they could be a viable alternative to traditional banking systems. Cryptocurrencies are not as heavily impacted by inflation as traditional banking systems, which makes them a potentially attractive option to investors. While it remains to be seen whether cryptocurrencies will become a reliable alternative to traditional banking systems, the issue regarding the stability of the American banking system remains a pressing concern.

Conclusion

In conclusion, the issue of American bank stability is a complex one, with many factors contributing to its current precarious state. The rise in inflation and decreasing value of bank liabilities have significantly impacted the banking sector’s sustainability. Nevertheless, there are still hopes that regulatory bodies such as the Federal Reserve and the Federal Deposit Insurance Corporation can take steps to improve financial stability in the country.

FAQs

1. What is the Federal Reserve?
The Federal Reserve is the central banking system of the United States.
2. What is insolvency?
Insolvency refers to a condition where a company’s debts exceed its assets or if the company cannot pay off its debts when they are due.
3. What is a deposit franchise?
A deposit franchise refers to assets that are not on a bank’s balance sheet and are not considered when calculating a bank’s capital requirements.