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PacWest Bancorp price is on the receiving end of a 24% loss today. Bitcoin is down 2%. Which of these is most likely to make a comeback?
PacWest - dead man walking
For PacWest Bancorp the writing is very much already inscribed on the wall. Down 83% since the end of February this year, we are just awaiting the last rites and for the fat lady to sing.
Deposits declined nearly 10% over the previous week, and the bleeding can only continue for so long before the shrivelled corpse of PacWest becomes the next casualty for the banks.
If the bank were to come back like Lazarus from the dead, the question would have to be asked “who would think to put their cash into this bank”? Of course, the answer would be “nobody”.
What stops this banking crisis?
Money markets return a better percentage than banks, and in this current environment they are certainly a lot safer. The banking crisis that is taking place now is going to be one that will be infernally difficult for central banks to put the lid back on.
When confidence goes in a bank it is only a matter of time. Back in the day, the banking system cracks could have been papered over. Yes, the odd bank might have failed but there were plenty of others, and the debt wasn’t so ridiculously large.
However, the Global Financial Crisis of 2007/8 took the system to the limit, and the Federal Reserve had to pour currency back into the banks, and only just managed to stave off a potential globally systemic meltdown.
This time, the debt is exponentially worse and there are literally thousands of banks sitting on assets that are worth less than their liabilities.
Five banks are already gone. Credit Suisse was sold to UBS but had it not been, it could only have lasted a few more days before crashing into the dust, and sparking off a contagion which would likely have brought the whole industry down.
Bitcoin stricken but otherwise healthy
Amid this banking carnage Bitcoin is having some issues of its own. It really looks like it is going to head back down to the $25,000 support level at least.
Be that as it may, this is likely a blip in Bitcoin’s incredible trajectory. Going back to the $25k or $20k supports is a healthy correction before Bitcoin starts its latest bull run in earnest.
For such a scarce asset, which is outside of a crumbling financial system, the price is likely to head skywards. What will happen to the rest of the crypto ecosystem is a moot point. But for the average investor, Bitcoin at least is a flight to safety from what could be the most devastating financial crash in history.
It remains for the Federal Reserve, and the world’s other premier central banks to do what they can to lift the traditional financial system out of a mire that is of their own making.
Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.