It was presented by Amber Bonefont on 8-May,2024 who was a #finance expert at Florida Atlantic university.
Warning signs of Republic First Bank’s failure were evident for a while, and now more banks across the country are exhibiting similar signs of a risk of failure, according to a finance expert at Florida Atlantic University.
The risk factors of Philadelphia-based Republic First Bank’s potential to fail were hiding in plain sight as #banks must report the market values of their securities in their quarterly regulatory filings, according to Rebel Cole, Ph.D., Lynn Eminent Scholar Chaired Professor of Finance in FAU’s College of Business. Republic First Bank reported unrealized securities losses in excess of its equity as early as June 2022.
State regulators closed Republic First Bank in April 2024, marking the first bank failure of the year. Fulton Bank entered into an agreement with the FDIC to purchase most of Republic First’s $6 billion in assets and to assume most of its $4 billion in deposit liabilities.
“The same risk factors, unrealized losses on investment securities and heavy reliance upon uninsured deposits, that brought down Silicon Valley Bank also brought down Republic First,” Cole said. “These risk factors triggered concerns of both investors and depositors about the viability of the banks when the banks announced efforts to raise additional capital before actually securing these additional funds.”
Other banks in the country could be at risk of failure as unrealized securities losses reached $478 billion, the most recently available data shows. Already, 40 banks with more than $1 billion in assets reported unrealized security losses greater than 50% of their equity capital. More than 200 smaller banks have done the same.
During 2020, bank deposits grew by more than 20% ($3 trillion) as depositors placed their government-funded pandemic transfer payments into their bank accounts; during 2021, deposits grew by another 15% ($2 trillion). Without profitable lending opportunities during the pandemic, banks put more than $2 trillion into investment securities, an increase of more than 50%. Banks were searching for yield, so they invested in the longest maturities available to them.
Since the end of 2023, the 10-year treasury yield jumped from 3.86% to 4.5% as the Federal Reserve Board has been steadily raising rates to combat inflation. As rates go up, the value of long-maturity securities decreases, inflicting huge losses on many banks.
Considering rising interest rates, upcoming data should show that losses have ballooned to more than $600 billion.
“Those numbers of banks reporting security losses 50% greater than their equity capital will swell because of the rise in interest rates since the end of last year,” Cole said. “We could see additional banks fail and will have to see if this will ultimately lead to another banking crisis.”

Source: Florida Atlantic university news
#BANKS #Risk #failures
$BTC $USDC

What is Risk/Reward (R:R) Ratio?

Whether you’re engaged in day trading or swing trading, understanding fundamental risk concepts is essential. These concepts serve as the bedrock of your market comprehension and provide a framework to guide your trading decisions, safeguarding and expanding your trading account.

One crucial concept is the risk/reward ratio (R/R ratio or R), which assesses the risk a trader assumes compared to the potential reward. In simpler terms, it reveals the potential reward for each dollar you put at risk in an investment.

Calculating the risk/reward ratio is straightforward. Divide your maximum risk by your net target profit. To do this, determine your desired entry point for the trade, then decide where to take profits if the trade is successful and where to set your stop-loss if it turns into a losing trade. This step is vital for effective risk management. Skillful traders establish profit targets and stop-loss levels before initiating any trade.

Once you have both entry and exit targets established, you can compute the risk/reward ratio by dividing your potential risk by your potential reward. A lower ratio indicates a higher potential reward for each “unit” of risk assumed. This understanding is critical for making informed trading choices and ensuring optimal risk management in your trading activities.

How to calculate the risk/reward ratio?

Let’s consider a scenario where you plan to enter a long position on Bitcoin. After conducting your analysis, you determine that your take profit order will be set at 15% above your entry price. Simultaneously, you address a crucial question: Where is your trade idea invalidated? That point should guide you in setting your stop-loss order. In this case, you decide that your invalidation point is 5% below your entry price.

So, your profit target is 15%, and your potential loss is 5%. Now, let’s calculate the risk/reward ratio. It is 5/15 = 1:3 = 0.33. This ratio signifies that for every unit of risk taken, there is the potential to gain three times the reward. In simpler terms, for every dollar of risk assumed, there’s the possibility of gaining three dollars. For instance, with a position worth $100, you would risk losing $5 for a potential profit of $15.

Understanding the risk/reward ratio in this manner allows you to make informed trading decisions, assess the potential rewards in proportion to the risks undertaken, and implement effective risk management strategies.

#Webgtr #Risk #Reward #Market #Trade