US Banking Crisis Poses Global Threat, Former Treasury Official Tells RT

• US Banking Crisis Poses Global Threat, Former Treasury Official Tells RT
  by https://www.rt.com/
  Contagion could spread to Europe and beyond, Paul Craig Roberts warns
  The policies of the US Federal Reserve are responsible for the unfolding banking crisis and could lead to more failures in the sector, Chairman of the Institute for Political Economy Paul Craig Roberts believes.
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  The official, who served in the US Treasury in the 1980s, talked to RT about the recent high-profile bank failures that have rattled the US financial system and the potential fallout of those events.
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  “For many years, the Federal Reserve kept the rates very low, so the interest on the financial assets that the banks have on their balance sheet is low. When the rates start rising, the values of their portfolios fall, but their liabilities don’t,” Roberts explained.
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  “The Fed’s policy of high interest rates pushes the banks into insolvency. And this is the cause of the problem,” he said, warning that “if the Fed continues raising interest rates, there will be more failures.”
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  The economist pointed out that the five large US banks – the three giant New York banks and the two giant California banks – have trillions of dollars of derivatives that they are currently holding. Yet, their capital base is only in billions. “So, they are exposed to risk in the trillions of dollars and they do not have the capital base to support that risk. So, if something happens again in these derivatives as it did earlier this century when we had the big crisis, those banks will be in jeopardy.”
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