A survey published by the Central Bank of the United States, the Federal Reserve, states that the top concerns of citizens regarding financial stability include high inflation levels and losses in the commercial real estate market. The increased inflation levels are expected to keep interest rates high in the country.
As per a Reuters report, the Federal Reserve confirmed on Friday that its survey was conducted prior to October, before the war began between Israel and the Palestinian enclave of Gaza. Meanwhile, the Russia-Ukraine conflict was cited as the eleventh-biggest concern, while a year ago, it was ranked as the number one concern regarding financial stability by the respondents.
Additionally, the Fed acknowledged several vulnerabilities within the financial system, which include historically skyrocketing asset valuations in equities and real estate. It talked about commercial real estate valuations, which remain high despite the recent decline in prices due to high office vacancies.
The central bank noted that if the US economy were to slow down unexpectedly, businesses with high leverage levels could be subjected to increased strain, and some might even cease their operations. According to the financial authority, a correction in commercial property valuations coupled with a mild recession could lead to “significant losses for a range of financial institutions with sizable exposures, including some regional and community banks and insurance companies.”
How Can Bitcoin Help
It is important to note that bitcoin is often considered a hedge against inflation by many, and rising interest rates are expected to fuel its price. Recently, MicroStrategy Executive Chairman Michael Saylor said that bitcoin is the best way to protect one’s wealth from risks associated with inflation and political uncertainties.
It’s worth noting that bitcoin is also considered a banking system for the ‘unbanked’ because it costs no money to operate and is fail-safe.
Current Situation of Banks
The survey noted that most of the banks continue to function without any issues, but some recorded “sizable” declines in the fair value of some assets due to rapidly increasing interest rates caused by sky-high inflation levels. Moreover, it stated that the failure of Silicon Valley Bank (SVB) earlier this year was caused by large levels of unrealized losses.
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Since the collapse of SVB, the Fed claims that banks continue to function normally without issues and have high liquidity. On a separate note, the survey reported that residential property prices have surged beyond the already increased levels in May, while household and business debt burdens remained moderate.