Arthur Hayes Sounds the Alarm: Fed’s Banking Solutions Are Doomed to Fail

"BitMEX Co-Founder Arthur Hayes Criticizes Federal Reserve's Half-Baked Solutions to Banking Crisis"

Arthur Hayes, co-founder of BitMEX, has criticized the Federal Reserve’s handling of the ongoing banking crisis, stating that the measures proposed so far are half-baked and fail to address the broader issue. In a recent Twitter thread, Hayes noted that selling First Republic Bank was a faulty step in resolving the crisis. The Federal Deposit Insurance Corporation (FDIC) recently declared JP Morgan Chase Bank as the winner of the bid for the troubled lender, making FRC the third American bank to fail since the latest wave of the banking crisis in 2023. Hayes believes that interest rate cuts do not solve the lingering financial problems and that the situation is not unique to FRC.

Hayes believes that the Federal Reserve has yet to find a permanent solution to the ongoing crisis in the banking sector. He thinks that the measures proposed so far are half-baked and leave the broader issue unsolved. He has criticized the selling of First Republic Bank as a faulty step in resolving the crisis. Hayes believes that interest rate cuts do not solve the lingering financial problems and that the situation is not unique to FRC.

The FDIC recently declared JP Morgan Chase Bank as the winner of the bid for the troubled lender, making FRC the third American bank to fail since the latest wave of the banking crisis in 2023. Despite efforts to get rival lenders to support the ailing bank, FRC became the third American bank to fail. By acquiring FRC, JP Morgan Chase Bank takes over all of FRC’s deposits, including uninsured deposits and a “substantial majority of assets”. According to the FDIC, all 84 FRC branches in eight states will reopen as JPM branches, National Association. All depositors of FRC will become depositors of JPM and will have full access to all of their deposits.

Hayes believes that the latest bank failure should prove to regulators that interest rate cuts do not solve the lingering financial problems. He thinks that the Fed is unaware that such measures only postpone the impending doom, considering reports that the financial regulator is planning a 0.25% rate hike during its meeting this week. According to Hayes, FRC has a loan book full of jumbo mortgages made to rich people at low rates that have depreciated way less after interest rates rose. He believes that another bank could fail soon, with a loan book full of illiquid Commercial Real Estate (CRE) loans.

Hayes sees this trend as a valid signal to short assets of US banks with the largest CRE portfolios. He indicated that he would look at 50% to 75% Out-of-the-Money (OTM) puts on the banks to be purchased after the Fed’s meetings. Hayes believes that the situation is not unique to FRC and that another bank could fail soon. He thinks that the Federal Reserve needs to find a permanent solution to the ongoing crisis in the banking sector.

In conclusion, Arthur Hayes, co-founder of BitMEX, has criticized the Federal Reserve’s handling of the ongoing banking crisis, stating that the measures proposed so far are half-baked and fail to address the broader issue. He believes that interest rate cuts do not solve the lingering financial problems and that the situation is not unique to FRC. Hayes sees this trend as a valid signal to short assets of US banks with the largest CRE portfolios. He thinks that the Federal Reserve needs to find a permanent solution to the ongoing crisis in the banking sector.

Martin Reid

Martin Reid

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