Record-breaking losses in American small banks due to record deposit outflows causing widespread panic and also posing a threat to major European banks like Deutsche Bank.

The outflow of deposits from small American banks was the highest in history in the second non-new week, amounting to 119 billion dollars (see graph no). Central European time data was released by the US central bank.

Amerian’s outstanding and early deposits responded mainly to the depth of the share price Silicon Valley Bank, which caused panic among them. In particular, they lost their door to small banks with low capital.

They transferred their disputes to both banks or you to short-term government bonds, which in a highly inflationary environment offer an attractive year even compared to deposits.

The essence of such a state is an extreme inversion of the swing. She found herself on the run in the USA inversion since the 1970s and 1980s; short-term debt, ie two-year debt, is much more expensive than ten-year debt.

First, the depositors’ deposits were soon converted into long-term debt by banks, and because of extremes inversion so they paid extra for it. And more. year, collect it on long-term debt, sometimes they don’t cover the year that they should pay the guarantors in order to remain competitive in your relatively high annual short-term debt and thus prevent the outflow of your investment in bonds with a year and me to maturity.

Threatened, however, there was a panic, its essence is inflation and inversion bond issue, not only small banks. According to the gate experts, the public is behind a sharp decline in the stock Deutsche Bank especially hedge funds, which are generally against weak pieces, especially among the large banks of the first type Deutsche Banki.e. the largest German bank and the bank’s most significant investment in the EU.

Even if Deutsche Bank this flow of resistance, which will happen in the fifth week, it is obvious that the central bank has faced a fuel dilemma. They will continue to fight inflation, increase years and watch the weak pieces fall away. Or let the banks die, sometimes zombie-like, by letting them pay the public through protracted noticeable inflation and a sharp drop in living standards.

The outflow of deposits from small American banks is the largest in history (source: Bloomberg)

Luk Kovanda, Ph.D.

Chief Economist, Trinity Bank