Banks’ 1Q Earning Report Reveals They Are Stockpiling Cash in Anticipation of a “Severe Recession”

With interest rates plummeting below zero and the central banks printing money like crazy, it is believed bitcoin is finding new users in those looking to escape the uncertain financial system.

These new investors are apparently using BTC as a safe haven as their confidence in the traditional market wavers. With money continuing to lose its value, it makes sense, bitcoin is being looked at as a safe place to store wealth and hedge against central banks.

This week, all the major US banks also released their earnings report. The Q1 of 2020 saw heightened volatility which brought in good revenues from trading. The titans of the banking system have been overall profitable in Q1.

The earnings gave the first glimpse at the extent of the damage of the coronavirus pandemic on the banks. It also showed the prevalent theme in the sector which is stockpiling cash. Usually, banks don’t set aside cash, but rather lend it out to make more money from it, but not this time. Analyst Mati Greenspan said,

“In the fractional reserve banking system, banks are required to hold a minimum amount of cash on their balance sheets. Despite the Fed removing this requirement completely last month, banks are now raising their cash buffer quite substantially.”

Focus on Building More Reserves

The earnings report of JPMorgan Chase this week revealed that its first-quarter profit plunged 69% to the lowest in over six years. The bank also set aside $8.29 billion, the biggest provision in at least a decade. Chief Executive Officer Jamie Dimon said,

“Given the likelihood of a fairly severe recession, it was necessary to build credit reserves.”

Wells Fargo’s reported the revenue of $17.7 billion while its net income dropped 89% to $653 million for the quarter. Wells Fargo’s chief executive, Charles W. Scharf said,

“The actual level of losses we incur will be driven by how long this period lasts and the level of support the government provides.”

The bank’s CFO John Shrewsberry said that the bank always sets aside more than it charges and “If things play out substantially worse, it’s certainly possible that we end up building more reserves.”

Citigroup also increased its loan reserve $4.9 billion in preparation for a US recession due to the coronavirus pandemic. The bank’s revenue jumped 12% unlike Goldman Sachs’ whose revenue was 10% lower from a year earlier while the trading division exceeded expectations.

Goldman set aside $937 million for loan losses in the first quarter, smaller in comparison to its peers.

Bank of America posted $4.8 billion in provisions and its revenue was slightly more than expected. CEO Brian Moynihan said,

“Despite increasing our loan loss reserves, we earned $4 billion this quarter, maintained a significant buffer against our most stringent capital requirement, and ended the quarter with more liquidity than when we began.”

This flight is also seen in the crypto market, with the issuance of stablecoins surpassing $8 billion. But as hedge fund king Ray Dalio emphasizes “cash is trash” and with central banks printing money relentlessly, this money parked in stablecoins is expected to finally make its way into Bitcoin.

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Author: AnTy

Is A Fed-Controlled Digital Dollar A ‘Win’ For the Public; Will it Pave Way For Faster Payments?

  • A digital dollar means Fed will be “free to impose negative nominal interest rates on all dollar-holders,” and privacy concerns – Lawrence H. White, a professor of economics
  • Fed-issued digital currency would need to be carefully designed, implemented, and regulated for faster, cheaper and more secure payments – Neha Narula, the director of the Digital Currency Initiative at MIT

Central banks around the world are assessing the benefits of issuing a state-controlled digital currency after China announced that it is close to launching its digital yuan and Facebook launching Libra. Just last week, there have been reports that Riksbank has started testing e-krona.

Even the Federal Reserve chairman Jerome Powell came forward to share that Facebook’s so-called cryptocurrency has been a wakeup call for them to start researching the concept of a digital dollar.

However, there has been much debate about Fed-controlled digital currency where proponents say it would facilitate faster and cheaper payments while protecting the Fed’s ability to conduct monetary policy, opponents say it would be costly and less efficient and could harm the government’s privacy.

Digital Dollar a “No Win” for the Public

The US government issuing a digital currency may not be a no-brainer but “it won’t be a “win” for the public,” said Lawrence H. White, a professor of economics at George Mason University.

According to the Wall Street Journal, White argues that most proponents of central bank digital currency are envisioning a currency that would give the government the

“ability to track all payments and eliminating the anonymity provided by physical cash today.”

And the claims of the national digital currency making retail payments costless, secure, and almost instantaneous are “dubious”. A central bank retail-system he said would require the Fed to match the level of services provided by commercial banks today which means investing in ATMs, branch offices, phone apps, tellers, and much more. Also, the payments system needs to be continually improved through innovation. White said,

“Given the government’s poor record on efficiency, the likely outcome would be a system that falls short on customer service or loses money at taxpayers’ expense — or both.”

This would also mean, the Fed will be “free to impose negative nominal interest rates on all dollar-holders,” and further raising serious concerns about privacy because the government will be able to track every single dollar spent.

Fed’s Involvement would make Payments Easier

On the other hand, Neha Narula, the director of the Digital Currency Initiative at the Massachusetts Institute of Technology’s Media Lab, makes the case for digitizing the U.S. dollar which she said would make payments easier.

The current cashless payments systems rely on financial intermediaries and aren’t much different from paper checks that means their fees are higher, slow settlement, and micropayments are almost impossible.

“The U.S. could help pave the way for faster, cheaper and more secure payments by allowing consumers to hold central-bank-issued digital currency outside of commercial banks.”

As for the Fed-issued digital currency, it could coexist with physical cash or Fed could provide accounts directly to consumers and businesses, said Narula. She went on to say,

“A Fed-issued digital currency would need to be carefully designed, implemented and regulated to reduce the risk of fraud, protect privacy and ensure that commercial banks aren’t drained of the funds they need to make loans.”

According to her, if the US does not embrace this opportunity someone else will. There is already exciting experimentation happening with cryptocurrencies, leaving innovation to private companies could mean a small number of large companies dominate and control payments, stifle competitors, and “undermine the Fed’s ability to set monetary policy and regulate financial flows.”

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Author: AnTy

60% Of German Banks’ Charge Negative Interest Rates, ECB Says It Could Give Rise To ‘Bigger Risks’

Nearly 60% of German banks are charging negative interest rates from corporate clients on deposits while 23% are doing the same for retail customers, revealed a survey by the German central bank.

Two weeks after the European Central Bank cut interest rates deeper into negative territory, from minus 0.4% to minus 0.5% in mid-September, the Bundesbank surveyed 220 lenders.

These practices are proving to be controversial in Germany where ECB has been attacked for penalizing savers. ECB President Mario Draghi is being depicted as the “Count Dracula” a vampire sucking the savings dry in Germany’s tabloids.

Everyone Boarding the Negative Interest Rate Train

Last month, James von Moltke, Deutsche Bank’s CFO said Germany’s largest lender will start changing its client’s deposits.

Germany’s second-largest listed lender Commerzbank has also started approaching wealthy retail customers holdings deposits of more than €1m. Last month, Berliner Volksbank, the country’s biggest co-operative lender said it would start applying minus 0.5% on any deposits over €100,000.

State-owned German development bank KfW is also preparing to pass on negative interest rates to its borrowers.

According to a german price comparison website, Biallo.de, 140 lenders are already charging negative interest rates.

Now to give banks some relief from the negative rates, the ECB is introducing a “tiering” system that will exempt their part of the deposits with the central bank from charges.

ECB Warning About their Own Policy Measure

The eurozone economy has been struggling in the aftermath of the debt crisis in 2011.

To boost the flagging economy, negative interest rates were first introduced in the eurozone in 2014. But its knock-on effects have put a dent in the weakening earnings of Europe’s banks.

ECB vice-president, Luis de Guindos in a speech on Monday said the profitability of European banks had been “persistently low” and their aggregate return has dropped below 6%.

“This low interest rate environment also affects the investment strategy of the asset managers and in this respect, this part of the financial system could give rise to bigger risks,” Guindos told CNBC on Wednesday.

So, the ECB is warning that their own policy measures could cause systemic risk. This Mati Greenspan, a senior analyst at eToro says is “great” because,

“The ECB is finally admitting that they’re policy of excessive stimulus and artificially low interest is actually incentivising investors to take way too much risk.”

As we reported, this challenging time for the financial industry is good for Bitcoin. Negative interest rates give an investor less incentive to save but with Bitcoin, a cryptocurrency that has established itself as an “institutional store-of-value asset class” and has registered more than 100% gains in 2019 alone, they have the incentive to hodl.

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Author: AnTy

Negative Interest Rates Driving Institutional Investors to Bitcoin: Crypto Trends Report

  • Lower yield prompt institutional investors to seek riskier investments
  • Negative interest rates, easy monetary policies, Brexit, and upcoming US elections driving the demand
  • Bitcoin’s physical markets have advantages over gold

With negative interest rates making their way into major economies around the world, what impact it will have on Bitcoin?

CoinShares, a digital asset management firm released its Crypto Trends Report for November 2019, where it talks about how the negative interest rates are pressuring the traditional banking model and shifting the investment strategy.

As such, concerns regarding a recession cycle have risen and the contagion that could spread quickly across even the healthiest for markets.

The prices of hard assets might be above pre-crisis levels on the back of “cheap money” but “median income trails far behind median house prices.”

These concerns have investors returning to gold markets which are on a steady rise. Bitcoin, that has established itself as an “institutional store-of-value asset class” is also seeing interest from new funds.

Lower Yield Prompt Institutional Investors to seek Riskier Investments

As we can see currently the economies are making a shift from cash but demand for cash is still on the rise. The report mentions the Euro’s total cash value outstanding in banknotes is now exceeding €1.25tn with the US following the same trend. To control this upward trend, regulators are placing ceilings on potential cash use.

“Without cash, depositors would have to pay the negative interest rate to keep their money with the bank, making consumption and investment more attractive. This would jolt lending, boost demand, and stimulate the economy,” says IMF in one of its posts.

Cash is a liquid asset but returns no yield and is subject to inflation by default.

Purchasing Power of the Consumer Dollar in US Between 1913 and 2018

Purchasing Power of the Consumer Dollar in US Between 1913 and 2018

Purchasing Power of the Consumer Dollar in US Between 1913 and 2018

Purchasing Power of the Consumer Dollar in the US Between 1913 and 2018

According to the IMF, “lower-for-longer yields may prompt institutional investors to seek riskier and more illiquid investments to earn their targeted return.”

Bitcoin’s easier self-custody & trading gives it Advantages over Gold

In 2019, gold hit a six-year high, climbing to 2011 peak, marking the return of demand into the traditional asset class from central banks and investors alike. Negative interest rates, easy monetary policies, Brexit, and upcoming US elections contributing to the gold demand.

Worldwide Google Search Interest for ’Gold’

When it comes to the digital gold, the CoinShares says having checked off the requirements by regulators and shedding a near-decade of concerns on its viability, Bitcoin has “firmly established itself” as an institutional asset class, since the start of futures on the Cboe and CME.

Bitcoin’s physical markets have established on and off-ramps on a global scale and this the report says gives it advantages in terms of easier self-custody over gold. Moreover, global trade is easier to facilitate with BTC than with physical gold markets, especially with settlement finality.

Though Bitcoin was designed to address the payments industry, it has swung into Store-of-Value asset class with the additional benefit of total ownership and ability to transfer value easier and faster than other SoV assets.

As the price of Bitcoin recovers to $8,660 today and has been hovering around this range the past six days, many are optimistic yet some wonder if we will see a new high in 2019 or the 2020 bitcoin halving will kick in to effect during Q1. Time will tell, but for now this is great data and research to digest to keep understanding the number one blockchain-based crypto asset in Bitcoin, now over 11 years since its whitepaper release by Satoshi Nakamoto.

“}” data-sheets-userformat=”{“2″:13057,”3”:{“1″:0},”11″:3,”12″:0,”15″:”Open Sans”,”16″:11}”>Latest Bitcoin Price News and Crypto Market Updates

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Author: AnTy