2024 Price Discovery

When the bank system breaks or at best fractures like it has in the last month, it doesn’t just affect the banks or their immediate consumers. 

It is easy to look at the run on the banks in terms of deposits or the resulting decline in the banks’ stock prices. Sure -this is ugly and represents a mismatch (at best) or failure to understand risks (at best) or pure stupidity in the classic problem/issue that banks MUST face as part of their business in terms of matching liabilities and equities. 

No individual family could get away with the same type of mismatch for so long. They would be wiped out.  

The Feds and Treasuries policies over the last 15 years have allowed them to start this mess and continue and their actions now aren’t solving the problem. It’s a band aid to one sector of a big problem. 

This situation is going to result in a pullback in capital from the regional banks for their smaller, local customers. It is this pullback where we will see who is really exposed.  

Banks might say that their lending standards have been strong/solid, and they have only underwritten to an 80% LTV. But they find out that the other 20% was also borrowed or that asset values have declined, it will be a different problem that banks face. 

2024 is going to be an interesting and I believe bad price discovery period.