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

Isolated Margin designates the margin balance designated for an individual position. The Isolated Margin mode empowers traders to manage risk on singular positions by restricting the margin allocated to each. The assigned margin balance for every position remains adjustable on an individual basis.

In the Isolated Margin mode, if a trader’s position is liquidated, solely the Isolated Margin balance is subject to liquidation, rather than the entire margin balance.

For instance, consider Alice entering a 10x leveraged long BTC position worth 1000 USD. While her margin balance is 2000 USD, she opts to risk only a portion for the specific position, setting Isolated Margin at 100 USD. Consequently, in case of liquidation, her loss won’t surpass 100 USD.

Adjustments to the Isolated Margin amount are possible for active positions. Should a position in Isolated Margin mode approach liquidation, bolstering the position’s margin can prevent liquidation.

However, modifying the margin mode for a position already opened isn’t feasible. It is strongly recommended to review margin mode settings before initiating a position. This approach enhances risk management and ensures optimal decision-making.

$BTC

#WebGTR #IsolatedMargin #Risk #USD #bitcoin

Hedging is a risk management strategy used by individuals and institutions to mitigate potential losses that could occur in an investment.

An Example of Hedging Your Bitcoin Position

Imagine you have a $10,000 investment in BTC, and you wish to safeguard against a potential decline in its value. Here’s how you can hedge your position:

Assuming the current Bitcoin price is $50,000, you could acquire a put option that grants you the right to sell Bitcoin at $50,000 on a future date. Let’s say you pay a $500 premium for this option (actual prices may vary depending on market conditions).

In the event that Bitcoin’s price drops to $40,000, you have the option to exercise your put option, selling your Bitcoin for $50,000 and substantially mitigating your losses. The cost of this hedge would be the premium you paid for the option, which, in this case, amounts to 0.01 BTC (calculated as $500 divided by $50,000).

Alternatively, you might opt to sell a Bitcoin futures contract. Suppose you sell a futures contract for 0.2 BTC, committing to sell Bitcoin at $50,000 in one month. If Bitcoin’s price does indeed decline to $40,000, you can purchase 0.2 BTC at the lower price to fulfill your contract, effectively selling your Bitcoin at $50,000 and neutralizing losses in your portfolio. However, should Bitcoin’s price rise, you would still be obligated to sell at $50,000, potentially missing out on any price increases.

This hedging strategy can be likened to obtaining an insurance policy. Just as you would protect a home in a flood-prone area with flood insurance, in financial and crypto markets, hedging serves a similar purpose by reducing the risk of adverse price movements in an asset.

$BTC

#WebGTR #Hedging #bitcoin #crypto #Risk