Name: Something is going deeply wrong with US Banks
Uploaded: 2025-10-26T18:21:15.000Z
Duration: 15 min 20 s
Description: Thousands of YouTube videos with English-Chinese subtitles! Now you can learn to understand native speakers, expand your vocabulary, and improve your pronunciation...

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There is something seriously wrong in the banking sector.

Basic passive voice

While everybody is distracted by the AI bubble, there is a crisis brewing in the banking sector.

Whenever there has been a banking crisis in the history of the United States, it always ended up crushing the entire economy.

And this crisis could potentially be much bigger than the crisis of 2008.

If you think that I am exaggerating, let me show you exactly what is happening.

But before we get into that, we have to understand the banks works.

A bank is a financial institution that takes money from depositors such as you and then loans that money to anyone else who needs that money in form of mortgages, auto loans, credit card loans.

But usually whenever you deposit your money, that money doesn't instantly go to the depositors because the bank needs clients to loan that money.

Which is why sitting on tens of billions of dollars is extremely unprofitable.

Imagine you were a bank and you now got so much money from depositors every single day that you're sitting on that money.

you promise to pay interest to your clients, which is why usually the banks take that money and invest it in the bond market by buying government bonds.

Government bonds provide you with some kind of a stable return.

And U.S. treasury bills are considered safe havens, the safest investments possible.

And you can easily turn them into cash whenever you need them.

So if suddenly you have a lot of clients, you can turn your treasury bills into real cash and and provide loans to these clients.

The US Bond market is so huge that hundreds of billions of dollars of transactions are taking place every single day.

So you can easily sell your Treasuries to asset managers, to other banks, or even the Federal Reserve.

Which is why if you have a lot of bonds, people would consider those government bonds equivalent to cash.

Even though that these treasury bills are as good as cash at the end of the day they're assets and their prices fluctuate in the market based on demand and supply.

If there is a lot of demand for these government bonds, suddenly the price of bonds increase.

If there is very few demand and there is a lot of supply for these government bonds, suddenly the price of these government bonds are going to tank and they will worth a lot less.

If you have a thousand dollar government bond that pays 2% in interest rates and suddenly the new Government bonds pays 5% in interest rate.

Now the demand for older government bonds that pay interest rate suddenly fallen.

So the price of these government bonds are going to fall.

You no longer can sell it for $1,000, even though that you can get A thousand dollars.

At the end of the day, since the new government bonds are going to pay you a much higher interest rate.

Understanding that dynamic in the market is extremely important since banks are sitting on trillions of dollars of government bonds.

If you take the entire industry, usually even smaller banks, have billions of dollars of these government bonds.

What happens if the demand for US Treasuries fall suddenly?

Bond prices are going to fall dramatically, which means that on paper, these banks are going to make a lot of losses.

Imagine you are a bank and you have $100 billion worth of government bonds and suddenly you need cash.

However, because there is very little demand for these government bonds, on paper, their prices have fallen.

Unless you sell these investments, then you are going to realize those losses.

For now, these losses are just on papers.

If you wait enough for the market to correct itself, maybe the prices of these government bonds are going to jump back and they will worth as much as they did in the past.

But because on paper, theoretically, if you sell your government bonds today, you won't be able to pay off your depositors, that is going to create a panic in the market.

If I keep my money in your bank and on paper, if I see that theoretically there is a chance that you won't be able to pay me back, I will instantly run to the bank and will withdraw all of my money.

I would rather deposit it in another bank because I don't want to take that kind of a risk.

What if suddenly I won't be able to withdraw all of my money?

Which is why that often creates a panic in the market and leads to a bank run when everybody suddenly rushes to the banks to withdraw their money.

So suddenly the bank will run out of money and it will declare bankruptcy.

And that happened multiple times in the U.S. history.

The most recent famous example is the Silicon Valley Bank.

During 2020 and 2021, when the economy was filled with cash, a lot of companies, especially startups, were left with billions of dollars of cash and they had to deposit that money somewhere.

So a lot of money went into Silicon Valley Bank.

Between 2020 and 2021, 189 billion deposited in Silicon Valley Bank.

Silicon Valley bank was sitting on so much investments and because inflation was running very high, SVB had to do something, it had to invest that money somewhere.

So they invested pretty much most of that money in the safest investments possible, the U.S. treasury bills.

But back in the days or back at the end of 2021.

The interest rates were so low and U.S. treasuries would pay around 1 to 2% in interest rates.

So most of that money went into the government bonds.

Suddenly in 2022, the Federal Reserve started to hike interest rates.

So the new government bonds suddenly had a much higher interest rate.

Between January 2022 to August 2022, interest rates were risen from about 0.5% to as high as 5.5%.

Why would you buy a government bond that pays you a 2% in interest rates when you can buy a new government bond that pays you for 5.5% interest rates?

While Silicon Valley bank did not make any real losses because it was not intending to sell those Treasuries in the first place, on paper, the prices of these government bonds suddenly tank.

Just on paper, these losses are unrealized.

Investors on the other side looked at the Silicon Valley bank and realized that, wait a second.

Theoretically, Silicon Valley bank cannot pay off every single depositor.

Which is why I will rush to this Silicon Valley bank and withdraw all of my money.

So investors, one after another rushed into the bank, withdraw all of their money in a single day.

People withdrew like $42 billion out of the bank.

It could not pay off its depositors, which is why it declared bankruptcy and the government took over the bank.

While treasury bills are consider the safest investments because they pay you interest and they're backed by the US Government and you can instantly turn them into cash.

Their prices fluctuate in the market and you have to take that into consideration.

And here is what happened in 2022 when the federal Reserve hiked the interest rates, suddenly the rates on the new government bonds suddenly jumped to about 5.5%.

These are the yields for two year government bonds.

The yields on 10 year government bonds have risen to as high as 5.

Imagine you have the safest investment possible that pays you 5.5% in real cash.

What do you think investors have done in 2022?

Everybody who had extra money suddenly started investing in the U.S. treasury bills.

That is the reason why Warren Buffett invested all of the Berkshire Hathaway's cash into U.S. treasury bills.

That is why Warren Buffett is sitting on $350 billion of U.S. treasury bills.

That investment is very safe and it pays you cash of 5.5%.

You won't be able to find that kind of investment anywhere else.

In fact, that encouraged a lot of other commercial banks, mutual funds, investment funds to purchase a lot of US Government bonds.

In fact, foreign investors, foreign governments, foreign pension funds looked at this and they're like, wait a second, this sounds like a fantastic investment.

Canada, Suddenly, starting from 2022, started massively investing in the US treasury bills.

And that's not just Canada, that was the rest of the world.

Because this was one of the greatest investments possible.

Yes, inflation in 2022 rose dramatically in the United States.

However, because the Fed hiked interest rates, everybody knew that the inflation is going to go down to about 2 to 3%.

While if you buy a 10 year US treasury bills that pays you 5.5% interest rate, you could be rece cash over the next 10 years.

It was literally one of the best investments possible.

So the demand for US treasury bills dramatically rose to all time high.

On the other side, the cost of servicing the debt for the US government also rose dramatically.

Which is why in 2022 and 2023, the US government paid almost a trillion dollars in interest payments.

Now here's the problem with the banking sector.

Inflation hasn't been solved yet and inflation is still around 3.3%.

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Something is going deeply wrong with US Banks

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