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Banks
- The asset side (loans specifically) of bank balance sheets are in great shape. Very few loans in default.
- A heavy reliance on uninsured deposits is the problem. This type of financing leaves banks vulnerable to deposit runs.
- Commentators are comparing this problem to the weakness of wholesale financing used prior to GFC.
- Possible solutions: Government raises the FDIC insurance limit and/or banks pay more competitive rate on their deposits.
- We believe Regulators are taking a pro-active, market-based solutions approach towards these issues which may ultimately play to the benefit of the larger financial institutions and perhaps consolidation of the SMID-cap banking system.
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