The Next Bank To Fail (What Just Happened)

what's up Grandma's guys here and as it turns out the entire banking system could be in a lot more trouble than we initially expected that's because just days after the collapse of three National Banks in a federal reserve bailout another Domino could soon begin to fall except for this time it's one of the largest banks in the world's Credit Suisse after all the situation is getting so bad that their share price has collapsed 97 down to two dollars their largest investors have just refused to give them more cash and some believe this to now be the start of a slow rolling crisis with the bank contagion just beginning so given these claims and just how interconnected the entire banking system is let's break down exactly what's happening what this means for the entire Market if there's a chance if more Banks possibly failing soon and then finally what you could do about this to make sure you're best protected although before we start if you want to be kept up to date on everything happening in the markets feel free to subscribe it would mean the world to me it helps with the channel tremendously and is it thank you for doing that I'll do my best to respond to as many comments as possible so thank you guys so much and also a big thank you to wealthfront for sponsoring a portion of this video but more on that later alright so in order to grasp the magnitude of what's going on you first have to understand how the banking system works and to do that I gotta introduce you to Credit Suisse they're one of the world's most prominent Global banks with over one and a half trillion dollars under management more than 50 000 employees offices throughout the entire world and a designation as one of these systemically important financial institutions of 2023 or I guess more simply put they have a massive impact on a variety of money related transactions because of that they've been ranked as one of the necessary operations that keeps our economy going as pretty much being too big to fail however a quick look into their past gives us a slightly different picture for instance in 2017 Credit Suisse was fined 5.3 billion dollars for overvaluing mortgage-backed Securities during the 2008 great financial crisis which result resulted in and I quote the loss of billions of dollars of wealth and took a painful toll in the lives of ordinary Americans in fact the settlement denounced that the bank knew it was peddling Investments containing loans that were likely to fail and they did it anyway but that's only just the very beginning in 2009 they forfeited 536 million dollars for violating the international emergency economic Powers Act by 2014 they pled guilty to assisting U.S taxpayers in filing false returns while paying another 2.5 billion dollar fine in 2019 they were caught spying on their top Executives resulting in the forced resignation of their CEO in 2021 they lost 4.7 billion dollars from a failed investment firm that defrauded its clients in 2022 their clientele was leaked to include individuals that would probably get this video demonetized right after being found guilty for money laundering and just before the year ended they paid 500 million dollars to settle a mortgage fine although in terms of what's happening today and why people are calling for the possibility of a second much worse collapse here's what you need to know all of this begins at the end of 2022 when the CEO of Credit Suisse made a statement that the bank was at a critical moment and tried to reassure employees not to confuse the day-to-day stock price with the firm's strong Capital base and liquidity position why would they say this you might ask well in addition to their stock price having declined over 90 percent throughout the last decade they were about to undertake a major restructuring to try to return the company back to profitability but in doing so they needed to raise Capital which some saws a last-ditch effort to stay afloat much like Lehman Brothers did right before their highly publicized downfall so in order to operate Banks must pass what's known as a stress test to ensure that they could survive a wide variety of financial conditions and their previous results were less than optimal Yahoo noted that their tier 2 capital is lagging behind regulatory requirements which means the bank lacks the necessary Capital to restructure successfully and shortly after that was released everything broke loose once investors began digging deeper into the company financials critics warned of their path moving forward declining revenue and dwindling returns they could have a significant impact on the entire Market which only ended up getting worse throughout 2022 customers of Credit Suisse withdrew billions of dollars from the bank contributing to the bank's biggest annual loss since the financial crisis in 2008. then again in February of 2023 the Federal Reserve stress test revealed that credit Suites was exposed to both Global Market shock and counterparty defaults with connections throughout the entire world and finally as if things were not bad enough on March 14th the bank said that it had found material weaknesses in its financial reporting over the last two years because of ineffective internal controls essentially this could be material misstatements and account balances for disclosures and when one of the largest banks in the world says this their customers justifiably begin to panic as reflected in what's known as credit defaults swaps now I know this sounds complicated but just imagine it like this anytime a bank issues a loan they have the option to purchase What's called the credit default swap which acts kind of like an insurance in the event the borrower doesn't pay it back in this case One bank is able to transfer their risk to another bank for a small fee and then that second bank takes on all the risk now in the event that second bank has to pay back the first bank they aren't completely out of luck because they'd assume the rights of the underlying investment and they're collecting enough of a premium from other credit default swaps to offset the risk however if a bank issues to many credit default swaps and they don't have the cash on hand to issue all of the insurance payouts then potentially they would be forced to raise a huge amount of cash to cover the deficit and if they don't then they could go under this is similar to what we saw throughout the 2008 great financial crisis where Banks like Lehman Brothers collapsed from a lack of capital once they couldn't pay for non-performing loans and now the concern is that history is beginning to repeat itself except this time with a bit of a Twist in this case Credit Suisse is one of the big biggest buyers of U.S Home Loans their customers are beginning to withdraw their money at the fastest Pace in decades and as of today the cost of their credit default swaps skyrocketed to its highest level ever in history implying that investors are beginning to bet on the entire company's demise so in terms of what this means for you your money and the market here's what you need to know although before we go into that here's what I found surprising a survey reported that fewer people have invested throughout these last 12 months due to a combination of inflation and the fear of losing money however Warren Buffett argues that most investors should simply stay the course for the long term which is why our sponsor wealthfront wants to help for those not aware wealthfront is an automated investment platform that utilizes software to create an optimized Diversified portfolio of index funds and ETFs to grow your money long term you start by asking you questions about your goals risk tolerance and investment preferences and then they take care of the rest with a set it and forget it approach all with just a few minutes of work plus with wealthfront's automated recurring Depot closets they could help ensure that you stay invested you keep dollar cost averaging into the markets on a regular basis even when the Market's down they also give you access to their financial planning tools which allows you to estimate your net worth over time and give you suggestions on how you could further save and invest more money based on your income and spending so if you're interested in signing up or learning more feel free to use the link Down Below in the description to get started today and with that said thank you so much now let's get back to the video all right now in terms of what's happening today all of this stems from the Silicon Valley Bank collapse which resulted in heavy scrutinization throughout the entire banking industry with Credit Suisse thrown right back into the spotlight after all just the last year their co-headed banking suddenly left after only nine months of being promoted in over 27 years of working within the company on top of that they've continued to be on the losing end of bad trades with their most recent deal resulting in a six and a half billion dollar debt that they'll be stuck with indefinitely as a result they've been scaling back on their entire operations by cutting 9 000 employees but with an 800 million pending lawsuit and other potential issues they're at the point of needing to make a pivotal move right now it's really not looking good or I guess more simply put people were taking their money out of a bank that was already losing a lot of money to begin with and that exasperated and may continue to exasperate liquidity risks which is another fancy way of saying they might be running out of money in addition to that their largest investors the Saudi National Bank said that they would not be giving them any more capital or increasing their position within the bank with their exact words being the answer is absolutely not for many reasons I'll cite the simplest reason which is Regulatory and statutory we now own 9.8 percent of the bank if we go above 10 all kinds of new rules kick in whether it be by our own regulator or the European regulator or the Swiss regulator so what are the chances then that this would be the next big bank to fail well in the event that we do see a bank failure there would be a rather devastating effect throughout pretty much everything as we've kind of already seen for example in 2008 when Lehman Brothers collapsed from over leveraged mortgages their bankruptcy resulted in 26 000 job losses a complete credit freeze his loans dried up and losses across the entire Market as investors worried about how their own Investments would be affected on top of that more than 75 other bankruptcy proceedings were recorded following the bankruptcy of Lehman Brothers so the Fallout wasn't just limited to one company not to mention if people lose faith in the banking system there's the concern that more people would pull their money out resulting in even worse Bank runs liquidity issues and a further consolidation into the banks that people believe are too big to fail but in this case credit Suites is listed as a systemically important financial institution meaning they're deemed to pose a serious risk to our economy if they were to fail this was a designation created back in 2010 as a way to enforce stricter oversight within banks that have a significantly large effect than our economy and it's the government's way of ensuring that these companies operate as responsibly as possible which I know is laughable in hindsight given everything that they've done anyway to answer your question as to whether or not you should be concerned the answer is it's certainly possible but given how large they are I think it's rather unlikely they'll completely go under in fact within 24 hours of Credit Suisse facing potential financial difficulty the Swiss National Bank said that they would provide liquidity if needed even though they believe the bank to still be well capitalized essentially they're promising to backstop any losses until hopefully the bank could eventually regain profitability all of this was really done as a way to calm down the markets knowing that if consumers of faith in the system they're not all going to rush for the exits at the exact same time and that's not going to spread throughout the entire economy this leads me to believe that despite the headlines there can't be a serious danger in the markets and customers should absolutely diversify their whole things just in case but a company like Credit Suisse has grown to the point where they could be subsidized by the government in the event that their downfall would negatively affect the rest of the world of course blackrock's Larry Fink somewhat disagrees with this and says this is simply The Dominoes beginning to fall after years of easy money and hey you know what he could be right the Savings and Loan crisis of the 1980s for example took almost a decade to unfold with thousands of lenders being completely wiped out although in this case I think a more realistic approach is simply that Credit Suisse gets bailed out they get a slap on the wrist after receiving over 11 billion dollars in fines paid out over the last 20 years and life goes on until the next headline comes up that's not to say that there's no risk whatsoever but based on previous bailouts it seems as though they'll be backstopped at least for the foreseeable future that's why I would highly recommend that you diversify your bank accounts make sure you're always under the FDIC limit and understand that Panic May create some good buying opportunities if you're a long-term investor personally I'm using this as an opportunity to dollar cost average into the markets on a lower basis but I guess you could also ask chat gbt because it correctly predicted that the market was going to crash on March 15th coincidence let me know in the comments of what you think so with that said you guys thank you again for watching also thanks again for wealthfront for sponsoring a portion of this video as always feel free to add me on Instagram and don't forget that you could get a free stock with all the way up to a thousand dollars with our sponsorpublic.com Down Below in the description when you make a deposit with the good Grand enjoy thank you so much and until next time

Channel: Graham Stephan

Views: 338,969

Keywords: investing, investing for beginners, investing in your 20s, how to invest, how to invest in real estate, how to invest in stocks, stock market investing, stock market investing for beginners, stock options, robinhood, robinhood app, best stock trading app, how to be a millionaire, how to be a millionaire in 3 years, credit score, credit score explained, credit card, credit cards for beginners, passive income, how to build wealth, how to build wealth in your 20s, real estate 101

Id: yn2PPHsU0b8

Length: 12min 17sec (737 seconds)

Published: Thu Mar 16 2023