Collapse of the banks: This story sounds familiar...

Has it happened to you that you seem to be living a deja vu?? For those who don't know what déjà vu is, it is that feeling of living something that you had already experienced on another occasion. Well, today I felt like that when I read the news about the US Federal Reserve having announced financing to save the banks.

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This gets surreal

While we have been hearing the FUD for years from many governments, institutions and investors saying that cryptocurrencies are risky and that whoever invests in them will lose all their money, today we are seeing how several of the most important banks of the main economic power worldwide (that is, the US) are going under or are directly being closed by the Federal Reserve to avoid further chaos.

Banks like Silicon Valley Bank, and Signature Bank, are clear examples of what is happening with banking institutions at a general level in the US; but also, what is happening with institutions such as Western Alliance, First Republic Bank and PacWest, among many others. All this indicates that the US is on the verge of a huge banking collapse of gigantic magnitudes which Wall Street seems to be perceiving it already; which is causing the most important Stock Market Indices (such as the Dow Jones Industrial Index) to be in red numbers.

Confidence in the US banking system is losing, and the value of the shares of financial institutions are plummeting. What's the Reality?? Whether they want to hide it or not, what is happening is that the traditional banking system is crumbling like a piece of bread in a bucket of water. And although many people attributes the blame of the banking collapse to the investments that these institutions made in cryptocurrencies, the reality is much more complex than that.

In any case, the bankruptcy or chaos of many banking institutions seems imminent. And the reality is that these banking institutions are collapsing for many different reasons, but fundamentally, because their systems and management are unsustainable; and because they intend to manage cryptocurrencies as if they were conventional investments.

How do banks work?

The key to all of this is understanding how banks work: Because the mechanics of banks has always been that they receive funds from their clients, take them, lend them to others, and charge interest for it. This way of acting works well except in cases where for one reason or another (rumors of bankruptcy, market instability, liquidity lack, etc.), the clients of said banks begin to want to withdraw all their funds from the banking institutions in one go.

Because every bank has sufficient liquidity to normally give funds to its clients in an isolated way (here and there) but when all the clients intend to withdraw their money from the banks at the same time; These collapse, because they do not have such a level of liquidity to meet their clients' requests for cash, since they have the funds lent to other clients; so they cannot immediately respond to withdrawal requests.

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This was already the case with conventional investments, but if we add to this the fact that many banks are using cryptocurrencies as a means of investment, the risk multiplies exponentially, because added to all of the above, the price of cryptocurrencies is volatile.

And we know that the banking collapse is not the fault of cryptocurrencies per se, but it is the fault of the banks for wanting to use cryptocurrencies as if they were a conventional investment medium, without realizing that they are facing a new paradigm of investment and technology in such a way that it cannot be treated like the investments of yesteryear.

A collapse of epic proportions?

It is fair to wonder if we are on the verge of a banking collapse of epic proportions; and the answer is possibly yes. And in fact, many analyst believe that this banking collapse may be the same as or worse than the financial collapse of 2008; without exaggerating.

I do not intend to do FUD the banks, as the banks do the crypto environment, but the situation is alarming. And it is so much so, that the US Federal Reserve is already talking about the fact that it will support the banks with funds to avoid collapse. Now, we can presume that the help from the Federal Reserve comes in the form of providing liquidity to banking institutions so that they can respond to their customers with funds, returning them to them effectively when they try to withdraw them.

With this, the Federal Reserve is trying to restore confidence in the traditional financial and banking system and avoid the chaos that is on the horizon. But the question arises... If there is no risk of chaos (as the FED is trying to make us think), why does the Federal Reserve have to be saving the banks' ass? Because the FED has announced that it will save the banks through a financing of 25,000 million dollars... But... And the consequences for the US economy in terms of inflation and other factors?... Anyway; as I see it, it is contradictory, paradoxical, illogical, incongruous, irresponsible and surreal. But again, this all sounds very familiar to me... I think I've seen this same movie on another occasion.

What do you think about the topic discussed? Please comment.

_{Gif created by @piensocrates}