So if I want to ask you four questions at one time, so I'll get some high second, Wait a second, some high level some high level information, high level information.
Going back to this banking stuff.
So when we're when we're looking at a bank, right, there's a couple of different factors that go into play in the in the banking system. And let's really break this down. So let's start with net interest margins. Okay, what's the deal with that?
All right?
The one metric that's most important to banks is net interest margins. That's the difference between the money they lend out, the money they take in and the money they lend out. That's their banking profit so to speak. So in normal times and any earning season, we got earnings coming up in two or three weeks. I know, Ian studies these charts like crazy. You're looking at these different key operational
metrics within different sectors. Well, in banking, that's the one that counts how much are they borrowing money for and how much are they lending it out for and how often are they lending it out, And the difference between what they borrow for and what they lend it out, that's their net interest margin.
That drives their profits.
We used to have this joke, can't really use it that much anymore, but you might as well. Banks work on the three six. Bankers work at three to sixty three schedule. They borrow at three, they lend at six, and they're on the golf course by three. Right, That's how a good bank's supposed to work. But with interest rates this high, they're lending out at a very high rate. Very few people are borrowing because these rates are pretty
terrifying right now. It's dissuaded, it's caused demand destruction. So their net interest margins are really low. So you want to look at lending activity, but you want to look at net interest margins to see which bank is bringing the most money down to the bottom line, down to the profit area.
The next one is percent of uninsured deposits.
Right, this is a big one.
Silicon Valley Bank had an enormous percent of uninsured deposits. They had a lot of money. They had a lot of customers that were over that two hundred and fifty thousand dollars limit. So that could have been small businesses, that could have been startups, that could have been wealthy people in Silicon Valley or just tech people who work in that industry that have gotten stock options over the years that have a few hundred thousand dollars or a million bucks in the bank.
So the higher.
What's that?
Do you know the percentage was? By chance?
I think it was like seventy nine or eighty that that number rings in my head. But when you look at a lot of the regional banks that have been attacked by short sellers over the past week or two, what are they looking at. They're looking at the banks with the highest percentage of uninsured assets because those are the most vulnerable. And the Fed raise rates again right
last week. They're just making this problem worse. The higher interest rates go, the title thos and that interest margins go, and the higher the harder it is for banks to loan. So they're getting squeezed because they're paying they have extremely high lending rates. Nobody's borrowing the money they have protected in government bonds. The price of those assets has really gone down a lot, and they have a higher percentage of uninsured assets.
Perfect storm surrounding banks right now.
Credit spreads.
Credit spreads is basically that it's really how much lending is going on and you want to look at the credit spreads between banks.
What a banks do and what does the Federal Reserve do?
It facilitates lending between banks, and it loans money to banks. It loans money to banks through what we call the discount window. And if you heard Fed chair Power last week and two weeks ago, what did the Fed do? That discount window is usually a seven day window. I'm a bank, I'm loaning to ian. He's got seven days to pay me back. We're loaning him at a certain rate.
He's got to pay me back plus that interest. Well, now that windows only one day long, so we don't have to wait seven days to see what happens to rates. That's a one day borrow. So when banks get tight, and when liquidity gets tight like we had in the Great Financial Crisis, banks stop lending to each other.
So you want to look at how much.
Lending is going on right now and the spreads between what this bank is loaning to this bank. It's super in detail for a lot of folks, but you're going to hear this word a lot. What are credit spreads? Credit spreads are getting blown out?
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Right, nobody's loaning at anybody at a reasonable rate because they're worried about that money. So when we hear this expression, they're blown out credit spreads. That means ingest rates have risen so high that banks are loaning to each other at exorbitant rates, and nobody's borrowing.
So it's how I've just got one more. But this whole banking system is extremely interesting because it's like I live, there's twelve regional uh federal Reserve banks, and then those banks overnight they lend money to all of the banks in their area. And then as they raise interest rates, then banks that's borrowing money from the big.
The big guys.
It's gonna be more expensive, which gets passed down on the credit cards. And it's the car, so it starts it starts at the top. They're loaning money overnight to the smaller guys, and then the smaller guys are auditioning out money to everyday people. So every time the interest rates get raised, that's how you are impacted in your day to day life.
And then inversely, the people who are depositing large amounts, they're using that money to now loan.
Okay, one last question.
The silver lining here real quick, is that there's finally money in the bank for actual depositors. So people who are freaked out about the stock market are freaked out about this, or that you could buy a CD right now for four or five percent, you can buy a money market for fun for four or five percent. So the silver lining and all of this is it's good for customers and depositors as long as our bank doesn't go under. But it's really rough between banks right now,
and really rough for businesses. That's why everyone's talking about a recession. Lending is going to get so tight, nobody's gonna borrow, nobody's going to expand they're gonna start laying off people.
That precipitates a recession.
Arise in credit, the fault swaps, what is credit and this is, by the way, ladies and jail, this is your master's degree.
If it sounds like a encyclopedia.
Your master's degree in five minutes, because it is for free, by the way, right.
Credit to fault swaps is basically derivative or an options contract. It's it's an insurance contract. So if I'm if I believe that the Bank of Ian Dunlap is getting risky, I may buy a credit to fault swap from you. Right, It's an insurance contract that says if he doesn't, if his stock price goes under, if his stock price keeps going down, you're going to each other on that insurance.
All right, sorry to use.
You, go ahead, already use you. So it's basically it's an insurance contract betting on the health of a bank.
In some cases, it could be anything.
You can buy credit default swaps on a lot of different securities, but the ones we're watching really closely right
now are the credit default swaps on banks. Why because they're the amount and the volume of credit default swap purchases and the price of credit default swaps against some of the biggest banks in the world, like Deutsche Bank, has been rising a lot in the past few days, more and more investors are doubting their ability to either get through a recession or they're doubting the ability, in the case of regional banks, for them to be able to survive this period of high interest rates, and they're
depositors taking money out. So watch credit default swaps and if you need a really good explanation if I didn't do a good enough job, the Big Short movie, which was terrific, that really explained if I financial crisis. There's a great explanation of credit to fault swaps in that movie. You should watch, and I'm sure the clip is on YouTube.
But basically it's an insurance contract between me and another investor betting on the health of a bank in this case, but it could be any security that was well put.
Thank you for.
My graduates from my school being force bad.
Drop drop, Mike, drop bag drop drop.
An illegal alien from Guatemala charged with raping a child in Massachusetts. An MS thirteen gang member from El Salvador accused of murdering a Texas. Man of Venezuelan charged with filming and selling child pornography in Michigan. These are just some of the heinous migrant criminals caught because of President Donald J. Trump's leadership. I'm Chris Denome, the United States
Secretary of Homeland Security. Under President Trump, attempted illegal border crossings are at the lowest levels ever recorded, and over one hundred thousand illegal aliens have been arrested. If you are here illegally, your next you will be fine nearly one thousand dollars a day, imprisoned, and deported. You will never return. But if you register using our CBP home app and leave now, you could be allowed to return legally.
Do what's right. Leave now. Under President Trump, America's laws, border and families will be protected.
Sponsored by the United States Department of Homeland Security.