It's hard to believe, but another year is about to be behind us. Before it goes, we'd like to revisit (as we do every year) the PNC Bank CPI (Christmas Price Index). It’s a whimsical take on the 12 Days of Christmas song and a fun way to say goodbye to another year.
Then, on a more serious note, we continue our discussion from last week (JRN 41:48) regarding what happened to the banks that failed last year (2023) and how to prevent a similar situation from happening again.
Happy Holidays!
Whether you celebrate Christmas, Hanukkah, Kwanzaa, Boxing Day, or any combination thereof, we wish you and your loved ones a very Blessed Holiday Season.
Jumbo Rate News will not publish next week. We will be back with Issue #1 of Volume 42 dated January 6th. But before we go...
Christmas Price Index Noses Out Consumer Price Index
Every year at this time, we look forward to the 5-Star PNC Bank N.A., Wilmington DE CPI (Christmas Price Index). It’s a whimsical take on the 12 Days of Christmas song and a fun way to close out the year.
This year, as in life, housing costs are skyrocketing. For the third year in a row, the cost of a partridge has remained unchanged. The cost of its dwelling, however, the Pear Tree, rose 16% this year after a 15% increase last year. Ouch.
Two Turtle Doves remained flat this year after soaring 25% last year. Three French Hens pecked-up 5% this year after a 3.5% jump last year. The French Hens were one of just two birds to register an increase this year as the four Calling Birds remained flat for the second year.
Surprisingly, after five consecutive years of price hikes on gold, the five Gold Rings have now remained unchanged for two years in a row.
Six Geese-a-Laying registered a 15.4% increase this year. At $900, this item costs roughly 3 times more than it did in 2018.
With no price increase in two years, Seven Swans-a-Swimming still cost $13,125 and are the second most expensive item in the index.
The eight Maids-a-Milking are still earning minimum wage, and the Federal minimum wage has not changed since 2009. At $58, the eight maids remain woefully under-paid (the least expensive item).
After remaining unchanged for almost a decade the price for nine Ladies Dancing rose 10% in 2022, stayed still for a beat last year and pirouetted a modest 3% this year.
Ten Lords-a-Leaping overtook the Swans as the most expensive index item last year when they registered a 4% price increase. They held onto that top spot this year with another 7.2% hop to $15,579.65.
Labor costs have pumped up the cost of 11 Pipers Piping. These musicians have consistently earned cost of living increases (6.2% last year and 15.8% this year). The 12 Drummers Drumming are also on a roll with a 6.2% increase last year followed by 15.8% this year. However, at just under $3,715 and $4,017, respectively, the musicians don’t come close to the Lords.
According to the PNC CPI, the True Cost of Christmas in the 12 Days of Christmas Song (with the repetition) is now $209,272. A 3.6% increase in this CPI nosed out the U.S. Core Consumer Price index of 3.3%.
The Cause of the 2023 Bank Failures and How to Prevent a Repeat
Continuing from last week’s story… It was not brokered deposits that caused the bank failures of 2023. It was an amalgamation of problems. We will discuss the primary three.
1) Depositors at the failed banks were not diversified. They were primarily crypto exchanges, start-ups and tech companies. These same sectors hit a rough patch in 2022 that inevitably trickled into their banks.
2) In 2022, the Federal Reserve began raising interest rates, and quickly. The Fed Funds rate went from near zero to over 5% in 14 months. This had a corresponding opposite effect on bond rates. Debt securities purchased by banks when rates were low, became underwater, at least on the books. These “unrealized losses” were okay ...unless the bank needed cash. If the bank had insufficient liquid assets and needed cash quickly, they could (and did) become “realized” losses.
3) Uninsured depositors got spooked. Fully-insured depositors had no cause for concern, but these banks also had huge sums of uninsured deposits on their books. Bank runs ensued, and they happened at the speed of a click on the phone. The damage was done and the banks failed at record speed. In this case, the government made all depositors whole, including the uninsured portions. Those depositors were fortunate.
The same cannot be said for the latest failure (First NB of Lindsay, OK failed 10/18/2024). This is why we were concerned when we read the third quarter FDIC Quarterly Banking Profile. It reports that, while estimated insured deposits were flat in the third quarter, estimated uninsured deposits grew 2.7%.
Not all banks are required to complete these fields on their quarterly call reports, many (most in fact) are calculated formulaically by the FDIC. At September 30, 2024, the FDIC estimated that over $7 trillion in deposits was uninsured (out of $19 trillion total).
All banks that reported more than $14 billion in estimated uninsured deposits can be found on page 5. Some, like 3-Star Flagstar Bank, Hicksville, NY are making a concerted effort to reduce those uninsured amounts. Flagstar’s estimated uninsured was cut 44% during the 12 months ended 9/30/24.
Others, however, are doing the opposite. Estimated uninsured deposits at 4-Star Western Alliance Bank, Phoenix, AZ, for example, grew more than 55% during that time-frame (from $12.4 billion to $19.3 billion). Those at 4-Star UMB Bank, N.A., Kansas City, MO grew 38.3% (from $20.7 billion to $28.6 billion). It’s not a problem… unless there’s a problem.