Banks: Which Ones Will be Left Standing?

During the next financial crisis, Elliott Wave International anticipates that quite a few financial institutions will go under.

That's why we've emphasized due diligence when it comes to choosing a bank or banks. Not all are created equal, so to speak. Some are stronger than others, and for bank customers in the U.S., we've emphasized time and gain that the Federal Deposit Insurance Corporation (FDIC) lacks the resources to rescue all depositors during a time of widespread bank failures.

Here's what The Elliott Wave Theorist said in August 2008, near the middle of the 2007-2009 financial crisis:

The FDIC is not funded well enough to bail out even a handful of the biggest banks in America. It has enough money to pay depositors of about three big banks. After that, it's broke.

No doubt, most bank depositors would be shocked to learn this.

But think about it: No single entity could possibly insure all the nation's bank deposits.

Yet, that FDIC sticker on the front of your bank is very reassuring. The discussions with your banker about your deposit "insurance" might be reassuring.

But, something that is not quite so reassuring is from none other than a former vice-chairman of the FDIC itself. Here's what Thomas Hoenig wrote for the Los Angeles Times in a Dec. 18, 2014 article titled, "FDIC couldn't cover a big bank bailout without taxpayer support":

As a reminder, when the financial industry imploded in 2008, Congress had to pass a special law to fund a $700-billion bailout... The Federal Deposit Insurance Corp. had nowhere near enough resources to fund their resolution.

The best way to protect your deposits is to research the banks in your community, and pick one where the banks' officers handle their customers' deposits prudently. A potential depositor also needs to make sure a bank is well capitalized.

This lesson applies to what's going on today, and there's not even a financial crisis.

Consider the well-known bank Credit Suisse. Customers have been yanking their investment and deposits over concerns about the bank's financial health.

The Wall Street Journal provided a synopsis (Nov. 23):

Switzerland's No. 2 bank by assets said outflows were around 6% of its total $1.47 trillion assets, or around $88.3 billion, between Sept. 30 and Nov. 11...

The fast pace of withdrawals meant the bank's liquidity fell below some local-level requirements, the bank said. It said it maintained its required group-level liquidity and funding ratios at all times. Banks must keep enough liquid assets on hand to meet expected cash outflows in a 30-day period...

The bank said it is still targeting a capital ratio of at least 13% between 2023 and 2025 as it restructures.

The December Elliott Wave Theorist mentioned this Credit Suisse story and said:

I don't know about you, but I want my bank to have more than enough cash to handle just 30 days' worth of normal outflows and a capital ratio closer to 50% than 5%-13%.

Yes, this is just one bank in a particular country, but it's a warning which applies generally. Remember, major U.S. financial institutions went down for the count during the 2007-2009 financial crisis.

The December Elliott Wave Theorist provides other warnings, including what's going on in the property market.

Learn more by following the link below.