U.S. banks edge closer to a bail-in as FDIC reports accelerating credit risks

On Feb. 24, the FDIC reported that credit risks to banks were accelerating, with industry benchmark JP Morgan having its first quarter loss to their loan reserve since the height of the Great Recession in 2009.  And despite trillions in quantitative easing, and years at zero interest rates, the potential for bank defaults have not been this high since the crisis of 2008.

On Tuesday, we got the answer (or at least a partial answer) to the question we posed last month when we asked the following: “How long before the impairments and charges currently targeting smaller firms finally shift to the bigger ones? And how underreserved is JPMorgan for that eventuality?”
We were of course referring to JPMorgan’s exposure to America’s dying oil patch where a rash of defaults and bankruptcies are just around the corner once the bevy of cash flow negative producers see their credit facilities cut by 10-20% when RBL is reevaluated in April.
What prompted us to ask specifically about JPMorgan’s exposure was the fact that in Q4, the bank did something it hasn’t done in 22 quarters: it increased loan loss provisions.

— Zerohedge

Chart courtesy of Zerohedge

Many of these credit losses and default risks are tied to the declining oil industry, which is primarily made up of lending to frackers in the Bakken region.  And in a microcosm for how these losses may be accelerating since the bonds were downgraded to junk status, just today the U.S.'s leading fracking company suspended production because they were bleeding capital from over 18 months of lower oil prices.

Yet for the common bank depositor, these growing credit losses may not seem like much of a problem.  However, when you realize that as more and more companies like Whiting Petroleum halt production, or default and go bankrupt altogether, then it brings into play trillions of dollars in debt liabilities held by the banks that the frackers will be unable to pay interest on, and even potentially go into default over.  And if that happens, then all the fears of what happened in Cyprus and Greece will come to bear as the 2010 Dodd-Frank Banking Reform Act places you the depositor as the primary  bailout mechanism, with the FDIC protecting derivative losses above your promised accounts in the advent of a collapse.

In addition to the growing crises that are brewing in Europe over Deutsche Bank, in Japan because of negative interest rates, and from the accelerating credit losses in the United States, this weekend will see the next G20 meeting that could incur monumental changes to the world's financial landscape.  In fact, one analyst in the precious metals industry is suggesting that we could possibly see the foundations for the Global Currency Reset come out of this weekend's Confab in Shanghai, China.

As events are accelerating towards the next global financial collapse, our days are becoming numbered in being able to protect ourselves from both central bank policies, and black swans that could change our financial landscape forever.  And with most of the world already in recession, and the banks beginning to teeter ever closer to insolvency, the probability of a bail-in event is looming larger than ever, and all it will take are a few more dominoes to fall before it happens in a flash.