Former Lehman Brothers executive Lawrence McDonald revealed, on Wednesday, that 50 more US bank collapses could be underway if the US governemnt does not address structural issues.

Following the collapse of Silicon Valley Bank (SVB) and New York's Signature Bank, which marked a historic failure in the US banking system, many have attributed the collapses to soaring interest rates. It is worth noting that interest rates are still expected to further increase later this afternoon.

When asked about the possibility of more banks collapsing, McDonald said "Yeah, because it's just after the financial crisis, and this all goes back to Lehman," adding  "So Lehman failed and then it forced this too-big-to-fail system, and then, now this interest rate shock to the regional banks is moving hundreds of billions of dollars out of regional banks into the big banks... So you could have another 50 bank failures... unless they fix the structural problem."
 
McDonald said that until Washington bails out banks by obtaining deposit guarantees and the Federal Reserve trims down on interest rate increases, the American financial crisis would worsen and "There's going to be further damage."
 
McDonald explained that in doing so, the federal government would be "taking on bank deposit risk."

The Ex-Lehman Brothers executive argued that the Federal Reserve and its Chairman Jerome Powell did not recognize the risk of constant rate hikes for US regional banks.

McDonald stressed "Powell was on the Hill [two weeks] ago telling us that the banking system was fine... he doesn't understand this like interest rate risk for the regional banks - and it's unconscionable," adding "he [Powell] was either lying or didn't understand what he's done. It's one of the two."

A US crisis will impact China, Russia?

McDonald said China would not have been able to avoid impact as a result of the US banking crisis since its economy is "very exposed to the European economy and the US consumer, so China doesn't avoid this at all."

The banker argued that since Russia is a "hard asset country" and benefits from increasing gold prices, meaning it would gain from the American financial crisis.

McDonald warned that Washington may be required to present a significantly larger backstop that covers deposits more than $250,000.

US banking sector 'stabilizing' after recent turmoil: Yellen

After the recent failures of Silicon Valley Bank and Signature Bank rattled the industry, the US banking sector is "stabilizing," Treasury Secretary Janet Yellen will state at the summit on Tuesday, according to already prepared remarks. 

A crisis of confidence was triggered by the collapses, with many customers withdrawing their money and depositing it in larger institutions, considered too big for the government not to bail them out if faced with failure. However, "aggregate deposit outflows from regional banks have stabilized" following authorities' moves to shore up confidence and stem contagion, according to Yellen's remarks. 
 
"Our intervention was necessary to protect the broader US banking system," she will say in a speech to the American Bankers Association's Washington DC summit, adding that similar actions could be warranted if smaller institutions suffer deposit runs that pose the risk of contagion."

Following SVB's collapse, the US Treasury, US Federal Reserve, and US Federal Deposit Insurance Corporation set out plans to ensure the bank's customers would be able to access their deposits. A similar exception was announced for Signature Bank. 
 
The Fed additionally introduced a new lending tool for banks in an effort to prevent a repeat of SVB's quick demise, and has since launched a drive with other major central banks to improve banks' access to liquidity.

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