Daily Gold Market Report

The Fed’s Policy Shift:
A Death Knell for Small Banks?

(USAGOLD – 2/05/2024) Gold and silver prices are sharply lower in early trading Monday, as most markets are bearish including a significant drop in the Chinese stock market. Gold is trading at $2017.39, down $22.37. Silver is trading at $22.37, down 32 cents. FX Hedge recently critiqued the Federal Reserve’s decision to impose an interest rate floor on the Bank Term Funding Program (BTFP) loans, equal to the interest rate on reserves. This move, intended to curb arbitrage that favored big banks, has inadvertently placed regional banks in jeopardy by increasing their borrowing costs and potentially leading to insolvency due to their reliance on the BTFP for credit. The piece argues that this policy change disadvantages small banks, exacerbates existing financial vulnerabilities, and may drive them into the arms of larger banks, effectively consolidating financial power.

Just last week, the stock of New York Community Bank, which took over the failed Signature Bank last year, plunged by 40% following its earnings report. Contrary to the anticipated profit of $260 million, the bank disclosed a loss of the same amount for the fourth quarter. Several smaller banks are significantly exposed to commercial real estate loans. Should defaults on these CRE projects persist, it might lead to increased stress on the banking sector.