To The Moon

Daily Mail UK has reported the following in a recent 28 August 2023 news article:

Growing numbers of Americans are being left without access to basic financial services as banks have axed more than 1,000 branches this year, DailyMail.com can reveal.

Data from S&P Global Market Intelligence shows a total of 1,144 national and regional banks were closed between January 1 and July 31 across 49 states - and firms are pulling out of some areas faster than others.

Accelerating closures run a risk of communities becoming so-called 'banking deserts' - when they are without access to a bank or credit union within 10 miles - leaving residents increasingly vulnerable to falling prey to high-fee lending options such as payday loans.

The axings are not limited to small banks in rural communities - they are also happening to large legacy banks in highly populated areas.

And plenty more are planned. This month Wells Fargo filed with the Office of the Comptroller of the Currency notices that it would shutter another 37 branches.

My investing muse

There is also a drive to encourage digital transactions. With more digital transactions, there would be a lesser demand for these brick-and-mortar bank branches. These closures have led to a syndrome known as "banking desserts" - where they do not have access to banking within 10 miles. The closure of these branches could be due to various reasons.

Is it due to a lack of business?

Are the banks cutting back their costs?

Could digitalization have driven down the need for these physical bank branches?

I believe that the reasons could be a mix of all the factors listed above.

My biggest question remains whether "the banking crisis is over"?

BTFP‌

My concerns for the USA banking sector remain. Part of my concerns stems from the government's Bank Term Funding (BTF) Program. For the most recent 11th August 2023 update, there was an additional USD $ 3.5 billion that was utilized. This BTFP was funding made available to help assure banks have the means to meet the needs of all deposits. If things are going well, the BTFP figures need to be trending downwards.

As of July 31, 2023:

1 • The total outstanding amount of all advances under the BTFP was $119,127,391,000. • The total value of the collateral pledged to secure outstanding advances was $144,379,894,000. In addition, the Department of the Treasury is providing $25 billion as credit protection to the Reserve Banks.

2 • The amount of interest, fees, and other revenue or items of value received under the facility, reported on an accrual basis, was $1,683,694,000. • As described in the Board’s initial report to Congress regarding the BTFP, the BTFP includes features that are intended to mitigate risk to the Federal Reserve. The Board continues to expect that the BTFP will not result in losses to the Federal Reserve.

As of June 30, 2023:

1 • The total outstanding amount of all advances under the BTFP was $115,629,868,000. • The total value of the collateral pledged to secure outstanding advances was $136,535,267,000. In addition, the Department of the Treasury is providing $25 billion as credit protection to the Reserve Banks.

2 • The amount of interest, fees, and other revenue or items of value received under the facility, reported on an accrual basis, was $1,211,623,000. • As described in the Board’s initial report to Congress regarding the BTFP, the BTFP includes features that are intended to mitigate risk to the Federal Reserve. The Board continues to expect that the BTFP will not result in losses to the Federal Reserve.

(Data are rounded to the nearest thousand. )

The above updates can be found on the Federal Reserve government's website.

With every increase in interest rates, the banks continue to suffer unrealized losses due to their bond holdings. As per the Seeking Alpha article screenshot above, Bank of America (BoA) has a notable $109 billion in paper loss. Should BoA hold these to maturity, these would not result in any (realized) losses. However, should BoA be required to sell these for cash flow, then, these losses would be realized.

Without more details, it is difficult to ascertain the health of the banking sector. However, I intend to treat the bank branch closures and increase in BTFP as cautionary notes. The regional banks could end up being absorbed (bought over) by the bigger banks. Once the banking sector runs into issues, the whole market would feel the tremours eventually. I recommend prudence in this volatile environment.

‌@TigerStars  ‌

‌$Bank of America(BAC)$  ‌

‌$JPMorgan Chase(JPM)$  ‌

‌$Wells Fargo(WFC)$  ‌