“The Wall Street Journal reported on Tuesday that Banks have collectively gathered $1.2 trillion in brokered deposits, a.k.a. “Hot Money,” and “regulators are growing concerned.” 

Really? Now they are getting concerned? Why did they let it grow to that level in the first place? Funding long term loans and securities with hot money deposits is a formula for bank failures, as hot money deposits can leave faster than the loans get repaid and the securities mature. It’s simply an arbitrage game, that in this rising interest rate environment, is a formula for negative interest spreads, liquidity crisis, and asset valuation declines greater than the entire capital of the banks.

The last time brokered deposits hit this level was just before the 2020 stock market crash. The year over year increase right now is 86%, and the amount has doubled since the first quarter of 2022. Why? So that banks can try to grow their way out of their asset problems. But in this rising interest rate environment, that strategy is not working.

The truth has not hit the fan yet, but deep dark rich humus is coming.”