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'How many banks are going to need to fail?' - Matterhorn's Matthew Piepenburg on financial contagion

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(Kitco News) - This spring's spate of banking failures portends more to come, said Matthew Piepenburg, partner at Matterhorn Asset Management.

Earlier this month Piepenburg spoke to Kitco at Deutsche Goldmesse in Frankfurt, Germany.

In March Silicon Valley Bank was seized by the California Department of Financial Protection. Signature Bank also failed this spring. Piepenburg warned the sector is under stress.

"It's just a symptom of a greater problem in the credit markets credit events," said Piepenburg. "A policy of raising rates at 100 miles per hour in a very short period of time is too much, too fast, too late."

Piepenburg said that banks were basically buying U.S government bonds at a top and "..when there was a run on the bank they had to sell at the bottom and that affected their capital."

"When this crisis came out in March I said you ain't seen nothing yet," said Piepenburg. "There's going to be more to come and there's only so much the FDIC can insure."

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Piepenburg noted that the number of regional banks is decreasing, and the ones that are running are stressed, noted Piepenburg.

"How many banks are going to need to fail and how much will it cost to support these depositors to avoid a contagion? This loss of faith in banking is going to have to be contained in some way.

"We'll see but I know that a lot of regional banks are going to have to raise their...checking account rates if they're going to keep deposits from going into money markets. That's going to affect their margins. If they get runs that's going to affect their viability. There's a lot of fingers pointing at these regional banks right now, and it's tragic and sad and it's not totally surprising."

Coverage of Deutsche Goldmesse 2023 sponsored by Defiance Silver.

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