March 15, 2018 | The failure of Bear Stearns & Co a decade ago illustrates the key lesson of financial markets, namely that non-banks are dependent upon 1) banks and 2) clients for liquidity. And no amount of capital will save a non-bank that has a deficit in terms of confidence. In times of market stress, credibility and character are far more important than capital. Like the Crisis of 1907, when JPMorgan (NYSE:JPM) had to rescue the trust banks at the behest of President Teddy Roosevelt, the investment banks in 2008 were abandoned by the markets. Lacking stable funding in the form of core deposits, the non-banks failed in droves, starting in 2007 with New Century Financial, once among the largest issuers of subprime mortgages. And it can happen again. Mark Adelson wrote in the Journal of Structured Finance: “By the summer of 2007, the prices of subprime mortgage-backed bonds already had begun to plunge. New Century, once a major lender, had declared bankruptcy; two hedge funds run by Bear Stearns were collapsing; and as emails obtained via lawsuits and investigations would later show, the rating agencies were well aware of the problems. In April 2007, one S&P analyst told another, ‘We rate every deal. It could be structured by cows and we would rate it.’” We recall sitting in a conference room with a group of investors early in March 2008, listening to people congratulate themselves for not "facing" Bear. Little did they suspect that the whole non-bank sector was toast and that Lehman Brothers would be next. While JPM took down Bear without a default, Lehman eventually failed and filed bankruptcy because nobody could get comfortable with the firm’s financials. The markets today are just as vulnerable to a "run on liquidity," with Goldman Sachs (NYSE:GS) now the smallest of the universal banks followed by Morgan Stanley (NYSE:MS). Since 2008, non-banks have grown in residential mortgages and other areas that are totally dependent upon bank financing. The changes made by the Securities and Exchange Commission in 1998 to Rule 2a-7, which prevents non-banks from issuing their own paper for purchase by money market funds, gave the big banks a monopoly on short-term warehouse credit, thus making the 2008 crisis inevitable. Bear was the smallest and least beloved of the bulge bracket Wall Street securities firms, having figuratively pissed on the floor by not agreeing to help rescue Long Term Capital Management in 1998. Nobody on the Street forgot that slight. Governance at Bear was at a minimum. The firm was run like a bridge tournament in a high school auditorium, with each table representing a different business unit and no overall enterprise management. Regulators and members of the academic community like to say that non-banks caused the financial crisis in 2007, but the reality is that banks as well as non-banks failed when liquidity disappeared. Regulators correctly point to issuers such as New Century, Lehman Brothers and Bear, Stearns as examples of wayward non-banks, but key players in the banking sector such as Wachovia, Washington Mutual and Countrywide also were culpable and vulnerable to runs. Jonathan Rose (2014) notes that during the subprime panic in 2007-2009, many large depositories such as Wachovia were subject to runs by institutional investors, both in terms of institutional deposits and even debt. WaMu, for example, lost significant deposits during 2008 leading up to its resolution by the FDIC and subsequent sale to JPMorgan. By March of 2008, in another example, Wachovia was seeing a significant outflow of deposits and demands from bond investors for early redemption which led to the bank being acquired by Wells Fargo later that year. Only the fact of “too big to fail” protected larger names such as Wells Fargo (NYSE:WFC), JPMorgan, Bank America (NYSE:BAC) and Citigroup (NYSE:C) from the contagion. The funding support provided to the non-banks and second tier banks by the large depositories, as well as the market demand provided by the mortgage securities issuance of the GSEs and large banks, are important factors that drove the overall demand for subprime mortgages. The eventual collapse of demand led to the failure of both banks and non-banks alike. Countrywide’s warehouse was largely financed by Bank of America, which was forced eventually to acquire the crippled institution. Washington Mutual and Bear Stearns were likewise funded by the large banks and money market funding, and were eventually acquired by JPMorgan with support from the Federal Reserve Bank of New York. Moreover, substantial parts of the balance sheet funding of “banks” such as WaMu and Countrywide were sourced from non-core deposits in institutional money markets. Many observers fret about the risk presented by nonbanks, yet the dependence of these institutions on bank financing means that the credit and market risk remains “in the bank.” In the event that a large nonbank financial firm in future experiences liquidity or solvency problems, the lender banks would almost certainly be compelled to acquire the nonbank. Non-banks, at the end of the day, are the customers of the big banks. That is the key lesson of the failure of Bear Stearns. The Institutional Risk Analyst (ISSN 2692-1812) is published by Whalen Global Advisors LLC and is provided for general informational purposes only and is not intended for trading purposes or financial advice. By making use of The Institutional Risk Analyst web site and content, the recipient thereof acknowledges and agrees to our copyright and the matters set forth below in this disclaimer. Whalen Global Advisors LLC makes no representation or warranty (express or implied) regarding the adequacy, accuracy or completeness of any information in The Institutional Risk Analyst. Information contained herein is obtained from public and private sources deemed reliable. Any analysis or statements contained in The Institutional Risk Analyst are preliminary and are not intended to be complete, and such information is qualified in its entirety. Any opinions or estimates contained in The Institutional Risk Analyst represent the judgment of Whalen Global Advisors LLC at this time, and is subject to change without notice. The Institutional Risk Analyst is not an offer to sell, or a solicitation of an offer to buy, any securities or instruments named or described herein. The Institutional Risk Analyst is not intended to provide, and must not be relied on for, accounting, legal, regulatory, tax, business, financial or related advice or investment recommendations. Whalen Global Advisors LLC is not acting as fiduciary or advisor with respect to the information contained herein. You must consult with your own advisors as to the legal, regulatory, tax, business, financial, investment and other aspects of the subjects addressed in The Institutional Risk Analyst. Interested parties are advised to contact Whalen Global Advisors LLC for more information.

March 11, 2018 | Reports last week that Goldman Sachs (NYSE:GS) CEO Lloyd Blankfein was planning to retire by the end of 2018 caused a bit of a fuss. We spoke about the prospect of a change on CNBC’s Closing Bell on Friday. And yes, we do hope Mr. Blankfein goes to Washington, a city where adult supervision is badly needed. As Blankfein prepares to declare victory and hand the leader’s baton to another GS banker, it is worth considering how the investment bank has changed under his tenure and its competitive prospects going forward. While Blankfein did an admirable job stewarding GS through the financial crisis, the bank’s future has never been less certain. When GS was founded by German immigrants in 1869, the tiny non-bank made its way in a marketplace dominated by large commercial banks. Marcus Goldman built his firm by providing credit to small businesses in New York, what is today known as commercial paper. By the turn of the century, GS was venturing into the world of equity underwriting, leading offering for businesses like General Cigar and Sears Roebuck. You can divide the history of GS into two major periods: the first half, which includes the firm’s early years and the 40-year tenure of Sidney Weinberg; and the second half, which begins with the ascension of Gus Levy as senior partner in 1969. Levy grew the trading business which became the primary source of revenue for GS by the 1970s. Weinberg, who was known as “Mr. Wall Street,” focused on building the firm’s corporate finance business after the 1930s. Under his direction, GS recovered from the Great Depression and became a leader on Wall Street in such areas as real estate and mergers & acquisitions. And yet despite the success of GS, the firm still operated in the shadow of the large Wall Street commercial banks and investment houses. Sidney James Weinberg For example, when the Ford clan wanted to save their business from the Internal Revenue Service after the death of Henry Ford in 1947, the family of Edsel Ford consulted Sidney Weinberg. The result of those efforts was the novel creation of the Ford Foundation, as described in “Ford Men: From Inspiration to Enterprise.” But when Ford Motor Co (NYSE:F) went public in 1956, Blyth, Eastman Dillon & Co. got the mandate. GS was the number four underwriter in the deal. Even with Weinberg’s relationship with the Ford family, another firm got the underwriting business. Going back 12 years to when Blankfein took over as CEO, GS was in some respect little changed from the firm created by Gus Levy. It was a large broker dealer with no bank deposit base and a business that rested on two legs, investment banking and trading. A third leg could be added to include the internal funds managed by GS for its partners and clients, a dimension that made the bank part advisor and part private equity investor. With the 2008 financial crisis, however, GS was forced to become a bank – in name, at least – in order to gain access to liquidity and support from the Federal Reserve. While other firms such as Lehman Brothers and Bear, Stearns & Co. were annihilated during the 2008 financial crisis, GS survived, albeit in a different form. With the passage of Dodd Frank in 2010, the major banks were forced to shed their internal funds and principal activities because of the Volcker Rule, which rightly identified the principal activities of banks as a fundamental conflict of interest with the bank’s clients. So today the house build by Marcus Goldman really rests upon just two legs, leaving GS vulnerable to changes in the trading environment. By becoming a bank, GS reassured its clients and came under the regulation (and protection) of the Federal Reserve Board. But in one of the many ironies of this period, the Fed’s purchase of securities as part of “Quantitative Easing” badly diminished the trading business of GS and the other major Wall Street banks. As we described earlier (“Banks and the Fed’s Duration Trap”), by taking $4 trillion worth of securities out of the private marketplace, the Federal Open Market Committee not only distorted credit spreads and juiced asset prices, but also suppressed volatility and trading in the secondary markets. Today at just shy of $1 trillion in total assets, GS is one of the smallest of the global universal banks. Compared to other large US banks, GS has among the lowest asset returns and net operating income as a percentage of total assets, but boasts non-interest income as a percentage of its balance sheet that is three times that of larger peers. At year-end 2017, net loans and leases at Goldman’s single subsidiary bank were just 12% of the firm’s consolidated assets vs 70% for most large banks. These metrics illustrate how the GS business model is very different from that of JPMorgan (NYSE:JPM) and Citigroup (NYSE:C) and remains dependent upon transactional income and volatile sources of funding. Let’s compare GS with Morgan Stanley (NYSE:MS), a slightly smaller bank holding company with two subsidiary banks that generates significantly more net interest income as a percentage of its balance sheet. The MS bank units have total assets of nearly $200 billion while the Goldman Sachs Bank USA had total assets of $160 billion at year end. Net loans and leases at MS were almost one fifth of the group’s total assets at the end of 2017 vs about 15% for the GS bank unit. Significantly, Goldman’s dependence upon non-core funding is twice that of JPM and C and roughly four times that of MS. The double leverage of GS (equity investment in subs / equity capital) was 116% at year end vs 101% for larger banks and just 85% for MS. Of note, the double leverage of GS was just 102% at the end of 2014. Credit rating agencies tend to get nervous when double leverage in a bank holding company is above 115%. One of the key measures of financial strength for a universal bank in the post-Dodd Frank world is assets under management (AUM), in part because so many universal banks have de-emphasized trading and focused instead on the regular cash flows of wealth management. At MS, assets under management were $438 billion at the end of 2017 generating an average of 46bp of fee income of $2.1 billion in 2017. Total fee based client assets at MS were $1 trillion at year-end earning 76bp on average or over $13 billion in pretax income. Of the $37 billion in net revenues for MS at year end 2017, 50% came from sales and trading, 44% came from wealth management and the remainder from investment management. By comparison, GS had $32 billion in net revenues at December 31, 2017, with less than a third coming from wealth and investment management and the largest portion from traditional trading and investment banking activities. GS has $1 trillion plus in assets under supervision, plus another $300 billion in liquidity products, yet the Investment Management segment generated half the net revenues of the comparable business at MS. In the half century since Gus Levy became the leader of GS, investment bank and trading remain the two largest segments at the firm. As and when new leadership takes over GS from Lloyd Blankfein, the key issue that confronts the firm is how to grow its current business model into a more balanced and less volatile franchise. Each time that GS has stumbled in terms of earnings from trading, for example, the firm has spent a great deal of time talking about growing the Goldman Sachs Bank into consumer deposit taking and lending. But these are low return businesses that offer more risk than reward. Trading cryptocurrencies was another suggestion advanced by Mr. Blankfein after a disappointing earnings report, a decidedly bad idea whose time hopefully has come and gone. As we discussed on CNBC last week, the opportunity for GS is to go where the larger banks are not. GS, for example, went into real estate finance, M&A and risk arbitrage long before the larger bulge bracket firms. In the wake of the 2008 financial crisis, many of the larger US banks have backed away from consumer finance and instead focused on lower risk wealth management and business lending. If GS chooses to remain a commercial bank, then it might consider acquiring another depository with a real retail deposit base and an established lending operation, hopefully one focused on business lending where spreads are higher and risks considerable lower. Construction lending, for example, is a short duration asset business that many commercial banks have fled, but it can be a very lucrative and low-risk business if managed properly. It also leads to other types of lending and asset securitization opportunities in real estate that GS knows very well. But if GS is to survive and prosper in the 21st Century, it needs to rely upon its legendary ability to see and execute on new opportunities before the larger players. Trading and investment banking are the heart of GS, but trying to grow consumer banking as the third leg of the stool seems like a bad trade, even if it helps to grow the wealth management business. Also, fighting with other banks and non-banks for the honor of earning 70bp on AUM is a tough way to get to double digit equity returns. If Lloyd Blankfein and his colleagues want a real world model for an innovative way to grow his bank we respectfully suggest two examples from the world of “fintech” (both of which we own): Square (NYSE:SQ) and PayPal (NASDAQ:PYPL). These are pioneers, “disruptors” in a sense, but also represent incremental additions to the existing monopoly of big banks in the world of payments processing. In each case, SQ and PYPL saw an opportunity to extend and reprice an existing business controlled by the largest banks and did so in partnership with the banks! SQ, for example, completely disrupted the sleepy world of bank merchant processing for credit cards and thereby created a new market segment and a new revenue stream. The entry of Starbucks (NASDAQ: SBUX) into the banal world of coffee is another example of creating a new, higher margin segment atop an established marketplace. The challenge for GS is how to leverage the fact of being a commercial bank into new, emerging markets where the big banks are not yet established. The trap that GS wants to avoid is doing what the larger universal banks are doing, but on a smaller scale. This is the unfortunate pattern that ultimately led to the demise of Lehman Brothers and Bear Stearns, which lacked the size, client base and liquidity to survive when the financial tide went out. When Sidney Weinberg and Gus Levy ran GS, they had not yet achieved the wealth and public acclaim that the firm has today. GS was still a tiny non-bank brokerage firm compared to the giant behemoths of Wall Street, which financed the Goldman business and still do today. GS is too small as a bank and too large as a securities firm to be a non-bank. GS has the financial wherewithal and reputation to make a bold move that allows them to break out of the established Wall Street model, but the question is whether they have the imagination, hunger and courage to take that risk. Fortunately, Weinberg and Levy provide pretty good role models for leading change. The Institutional Risk Analyst (ISSN 2692-1812) is published by Whalen Global Advisors LLC and is provided for general informational purposes only and is not intended for trading purposes or financial advice. By making use of The Institutional Risk Analyst web site and content, the recipient thereof acknowledges and agrees to our copyright and the matters set forth below in this disclaimer. Whalen Global Advisors LLC makes no representation or warranty (express or implied) regarding the adequacy, accuracy or completeness of any information in The Institutional Risk Analyst. Information contained herein is obtained from public and private sources deemed reliable. Any analysis or statements contained in The Institutional Risk Analyst are preliminary and are not intended to be complete, and such information is qualified in its entirety. Any opinions or estimates contained in The Institutional Risk Analyst represent the judgment of Whalen Global Advisors LLC at this time, and is subject to change without notice. The Institutional Risk Analyst is not an offer to sell, or a solicitation of an offer to buy, any securities or instruments named or described herein. The Institutional Risk Analyst is not intended to provide, and must not be relied on for, accounting, legal, regulatory, tax, business, financial or related advice or investment recommendations. Whalen Global Advisors LLC is not acting as fiduciary or advisor with respect to the information contained herein. You must consult with your own advisors as to the legal, regulatory, tax, business, financial, investment and other aspects of the subjects addressed in The Institutional Risk Analyst. Interested parties are advised to contact Whalen Global Advisors LLC for more information.

In this issue of The Institutional Risk Analyst, we feature a comment by John Mouseau, Executive Vice President & Director of Fixed Income at Cumberland Advisors. You can read more of Cumberland's always timely comments on the financial markets at www.cumber.com. March 8, 2018 | The Wall Street Journal had a story on the front page of the “B” section Wednesday morning about banks getting some relief with regard to counting municipal bonds among their “liquid assets.” On Tuesday the Senate voted to formally debate a bill containing that provision, and it should have enough Democratic support to pass. The debate over this issue has been going on for some time, and we wrote about it in 2015 (http://www.cumber.com/hqla-and-lcr/). We always thought it was a mistake on a number of fronts that munis were left off the list of high-quality liquid assets (HQLA). First and foremost is the importance of banks in the marketplace. Because of the tax exemption, banks have been buyers of tax-free municipal bonds for years. The level of taxation on municipal bonds clearly has an effect on banks’ decisions to own tax-free or taxable debt. So changes in the tax structure are one input into the buying decision. The banks’ book (purchase) yields are another input, and the designation of bonds as either “available for sale” or “hold to maturity” is another input. (Without getting overly complicated, the distinction is that realized gains or losses from “available for sale” bonds flow into the income statement, while bonds in the second category are generally held to maturity and recorded at cost.) However, one of the most important purchase considerations is the generally high credit quality of the overall municipal bond market. Moody’s publishes a study that is updated approximately every two years in which it compares municipal bond and corporate bond default rates by rating categories over a ten-year period. In the last report, for 2016, in the broadest category, “A”-rated municipal bonds had a cumulative default rate over ten years of .07%, while that of corporates (globally) was 2.22%. While both numbers are low, the corporate default rate is 31x that of municipals in the “A” category. If you look at the numbers cumulatively, including AAA to A, the default rate for munis is .09% in total and 3.38% for corporates. In this case the corporate default rate is 37x that of municipal debt, which implies that there is higher event risk in corporates (e.g., in high-quality bonds subject to the stress of takeovers). The fact that high-quality corporates were included in the 2014 bill as high-quality liquid assets but municipal bonds were not has always stuck in our craw. General Electric was rated AAA by Standard & Poor’s up to 2009, when it lost its gilt-edged credit status and is now rated A, yet the State of Maryland has been a AAA credit before, during, and since the financial crisis. Our point is that on a credit quality basis municipals have outshined corporates for many years and in most cases have provided better taxable-equivalent, risk-adjusted yields for banks. Why would regulators be prejudiced against the muni credit? Our thought is that lobbying by state and local governments was lacking four years ago when these regulations were first promulgated. And there tends to be inertia among banks to modify rules once regulations are in place. But make no mistake; this new bill is a winner for banks and a winner for the muni bond market. Banks may have a lower tax rate but that will not necessarily disturb higher purchase yields. And the fact that munis should be able to be counted as high-quality liquid assets will further cement their part in banks’ portfolios. Indeed, this bill will help Congress put the “quality” into the “high-quality” designation. The Institutional Risk Analyst (ISSN 2692-1812) is published by Whalen Global Advisors LLC and is provided for general informational purposes only and is not intended for trading purposes or financial advice. By making use of The Institutional Risk Analyst web site and content, the recipient thereof acknowledges and agrees to our copyright and the matters set forth below in this disclaimer. Whalen Global Advisors LLC makes no representation or warranty (express or implied) regarding the adequacy, accuracy or completeness of any information in The Institutional Risk Analyst. Information contained herein is obtained from public and private sources deemed reliable. Any analysis or statements contained in The Institutional Risk Analyst are preliminary and are not intended to be complete, and such information is qualified in its entirety. Any opinions or estimates contained in The Institutional Risk Analyst represent the judgment of Whalen Global Advisors LLC at this time, and is subject to change without notice. The Institutional Risk Analyst is not an offer to sell, or a solicitation of an offer to buy, any securities or instruments named or described herein. The Institutional Risk Analyst is not intended to provide, and must not be relied on for, accounting, legal, regulatory, tax, business, financial or related advice or investment recommendations. Whalen Global Advisors LLC is not acting as fiduciary or advisor with respect to the information contained herein. You must consult with your own advisors as to the legal, regulatory, tax, business, financial, investment and other aspects of the subjects addressed in The Institutional Risk Analyst. Interested parties are advised to contact Whalen Global Advisors LLC for more information.

August 10, 2026 | In this issue of The Institutional Risk Analyst, we review the latest results for the WGA Precious Metals Top 25. Subscribers to the Precious Metals Top 25 have access to the full test group of 47 stocks and ETFs. Sometimes the names at the bottom of the distribution are more interesting than the top group. But first we consider the process of changing the liability structure of Citigroup (C), one of the most improved of the large US banks in recent years. A reader of The IRA named Geoffrey very kindly drew our attention to a piece this past week in Barron’s predicting the demise of the beloved Citigroup Capital XIII TR PFD SECS (C-PN) of 2040, which we own in size. Barron’s has been wrong over the years about the potential redemption of the C-PN TruPS. Are they wrong this time as well? Rumors of a redemption have pushed C-PN TruPS prices down since the the July 14th Citi earnings announcement. Is this a buying or selling opportunity? More agentic manipulation? Whence comes all of this bother? First and foremost, in July Citigroup announced the redemption of $1.5 billion aggregate liquidation preference of 6.250% Fixed Rate/Floating Rate Noncumulative Series T Preferred Stock. This and some banal comments on the earning call apparently caused a sell-off in the TruPS C-PN securities as well. Click on the chart below to see the latest pricing on Yahoo Finance. Earlier in the year, Citi had issued a new preferred, C-PR, which is now also trading below par because of fears of an imminent redemption. Hello. Obviously there is not a lot of risk for the new C-PR preferred to be called, but no matter. Retail investors are running away from the uncertainty. Perhaps Citi IR should issue a comment? Yet the fact is that investors have reason to worry. Over the past three years, Citigroup has called and redeemed nine series of preferred stock as part of its ongoing liability and capital management strategy. Instead of buying back common shares, Citi has been retiring expensive preferred equity. Timeline of Called Citigroup Preferred Series Series T Preferred Stock: Called on July 16, 2026, with a redemption date of August 15, 2026 ($1.5 billion aggregate liquidation preference). Series X Preferred Stock: Called on February 5, 2026, with a redemption date of February 18, 2026 ($2.3 billion aggregate liquidation preference). Series W Preferred Stock: Called on December 3, 2025, with a redemption date of December 10, 2025. Series V Preferred Stock: Called on January 24, 2025, with a redemption date of January 30, 2025. Series P Preferred Stock: Called on April 15, 2025. (Note: Announced/redeemed in spring 2025). Series M Preferred Stock: Called on July 16, 2024. Series U Preferred Stock: Called on August 28, 2024, with a redemption date of September 12, 2024 ($1.5 billion aggregate liquidation preference). Series D Preferred Stock: Called on April 15, 2024, with a redemption date of May 15, 2024.Series J Preferred Stock: Called on February 28, 2024, to redeem the remaining outstanding shares ($550 million aggregate liquidation preference). Earlier 2023 preferred calls included Series K in October 2023 and Series A in September 2023, rounding out the post-2008 preferred calls. Another factor in the recent selloff of C-PN was a phrase in the Citi Q2 2026 earnings call: “As a reminder, we will continue to look for opportunities to drive structural efficiencies including severance to improve productivity and actions to improve our funding profile.” Citi’s funding cost vs average assets is just under 3.25% vs less than 1.8% for Peer Group One, the top 100 banks in the US above $10 billion in assets. With Citi earning over 11% on average common equity (RoCE), its does not seem obvious to us why the TruPS represent a drag on earnings. Source: FFIEC Even with all of this, however, the fact remains that the C-PN TruPS have been callable since 2015. Why is the market is reacting to this fact now because of the latest call for the Series C-PT preferred? Or is there something else is the wings? Not All Preferred are the Same The first and most compelling reason for Citi to keep the C-PN TruPS is the fact that they are irreplaceable. The Collins Amendment (Section 171 of the 2010 Dodd-Frank Act) required large U.S. bank holding companies to meet minimum leverage and risk-based capital requirements. A primary consequence of the Collins Amendment was the phasing out of trust preferred securities (TruPS) as high-quality Tier 1 capital for all large bank holding companies – except Citigroup. At the end of 2008, a cumulative total of nearly 1,400 U.S. lenders and bank holding companies had issued $149 billion in Trust Preferred Securities (TruPS). Most of the issuance activity peaked prior to 2008 (largely between 2000 and 2007) via pooled TruPS CDOs. The market saw very little new issuance as the 2008 financial crisis unfolded because these debt-like securities no longer counted as Tier One capital. Some other bank trust preferred securities remain outstanding, though very few large, publicly traded exchange-listed retail issues like Citigroup’s famous C-PN survive in active public circulation. Unlike many legacy trust preferred securities from other large institutions that were completely phased out due to the Collins Amendment, Citi's Capital XIII issue maintains its regulatory Tier 1 status even though it is treated as debt for tax purposes. The tax treatment of dividends alone mitigates in favor of retaining the TruPS. Citi’s common dividend yield is 1.99% as of Friday’s close, but those are after-tax dollars paying the dividend. Unlike the new C-PR and the other post 2010 preferreds, the coupon on the TruPS is treated as debt interest and thus a pre-tax expense for Citi. Also, the book carrying cost of the TruPS is a steep discount to par. A redemption at face value would imply a substantial $600 million accounting loss vs the $2.25 billion par value. We’ve noted in The IRA (“Earnings Setup: Top Seven Banks | BAC, C, JPM, TFC, PNC, USB & WFC”), that Citi does need cheaper funding, but to us that means buying some juicy core deposits in the form of an under-performing regional bank like Truist (TFC). Does retiring the C-PN TruPS move the needle in terms of improving the bank’s funding, especially on an after-tax basis? Not really, but the market action in the security certainly suggests that something may impend. In 2023, Barron’s noted that the TruPS are “[g]randfathered under post-financial crisis capital rules, they function with tax-deductible interest mechanics for the bank, which incentivizes Citigroup to weigh the carrying cost against prevailing interest benchmarks.” Will the Citi C-PN TruPS be called? Only time will tell, but if they are not called then there is a rather striking buying opportunity in the market today for income oriented investors. With the latest kerfuffle pushing C-PN TruPS prices down toward par, we may go buy some more. The big question for our friend Andrew Barry at Barron’s is this: If calling the C-PN TruPS makes sense today, then why didn’t Citi call these securities back in 2023 or earlier? The TruPS have the highest nominal coupon rate of all preferred, but among the lowest after-tax cost. If retiring these last remaining grandfathered large bank TruPS makes sense today, why didn’t Citi call them in 2023 or even before? That's a good question for Mike Mayo to ask CEO Jane Fraser in the Q3 earnings call. The WGA Precious Metals Top 25

"JOE KERNEN: You know what wouldn’t help the yen is if Warsh and co. raised rates in September.” "SCOTT BESSENT: Well, I think we have to look and think, what does an increase in the short-term rate actually do?" August 5, 2026 | In this issue of The Institutional Risk Analyst, we review the latest WGA Bank Top 50 listing for subscribers to the IRA Premium Service. There has been a brisk amount of churn in the bank rankings despite the strong results from Wall Street. Some of the leaders from earlier in Q1 2026 are now lagging the group rather noticeably. And Q2 bank earnings confirmed six straight quarters of falling loan yields and bank deposit rates. To provide some context to Q2 2026 bank results, the financial markets have been providing the lion’s share of bank earnings while interest earnings have been relatively flat. The Street has been feasting on volatility. But now, with the explicit repo rescue for Japan to forestall an involuntary sale of Treasury paper, all eyes are on the US Treasury, the big doggie to the Fed’s tail. The cast of characters for the next period of financial repression are in position. Recall that Treasury Secretary Scott Bessent helped George Soros during the 1992 crisis to execute a massive short-selling bet against the British pound. Today the staggering $40 trillion federal debt and other factors are driving LT interest US rates higher, but will likely see the short-end of the yield curve fall. What does this mean for US banks and bond investors? Are we about to see some Treasury QE ℅ Scott Bessent while Fed Chairman Kevin Wash watches politely? The chart below shows the average gross loan yield for Peer Group One less the average interest expense. But for a 25bp reduction in funding costs in Q1, the industry’s net spread on loans would have fallen significantly. And we suspect that funding costs could move lower in 2H 2026 as reserve balances ebb and banks are forced into Treasury bills. But loan yields may also continue to fall in a market that seems to be awash in liquidity. Source: FFIEC The Q3 results for the WGA Bank Top 50 were quite telling. Goldman Sachs (GS) dropped from #1 in Q1 to 26th in the latest quarter and Morgan Stanley (MS) likewise fell from #1 in Q2 to 15th in Q3 2026 as the AI sector selloff accelerated, especially over the past 52-days. As the Street has pushed the skew in volatility lower, we suspect that a lot of institutional money is going to take shelter in bank deposits and bank stocks. Investors and captive media continue to pretend that current market conditions are "normal," but the chart below suggests otherwise. Source: Nomura

August 3, 2026 | In this issue of The Institutional Risk Analyst, we feature a conversation with our colleague and fishing partner David Kotok. Some 25 years ago, David asked us to come fishing on West Grand Lake in Downeast Maine and we’ve had a conversation ever since. He is an American financial expert, economist, and author best known as the co-founder of Cumberland Advisors, where he served as Chief Investment Officer from 1973 through 2024. David holds degrees from the University of Pennsylvania’s Wharton School and School of Arts and Sciences. West Grand Lake (June 2026) This weekend, we updated the WGA Bank Top 50 listing for subscribers to the IRA Premium Service. The chart below shows some of the distribution of the top US banks by market cap starting with the highest scoring banks on the left side of the chart. The top score in the 102 bank test group for Q3 2026 was State Street (SST) followed by Bank of New York Mellon (BNY) and Charles Schwab (SCHW), the last of which we own in our portfolio. The WGA Bank Top 50 | Q3 2026 Source: WGA LLC One bank was acquired and three small banks were added to the group in Q3 2026. Subscribers may download the list for the full 102 bank test group on the Top Rankings page. Banks in the US tend to report earnings in the first couple of weeks after the quarter close, while nonbanks and corporates tend to release earnings later in the reporting period. You might say that the more obscure and complex business models hide in the back end of the 45 day reporting period. The IRA: David, thank you for reaching out. You made some interesting points about the correlation between gold and other markets that Keith Weiner talked about in his interview (“Interview: Keith Weiner, Founder of Monetary Metals”). One of his key points is that it’s hard to convince large investment institutions to allocate gold to accounts because it doesn’t have a yield and behaves as a commodity at times. At other times, it’s a monetary asset. But it’s hard to benchmark gold. I’d love to hear your thoughts on this point and the larger issue of gold as an investment asset. Kotok: Thanks, Chris. Always a pleasure to connect with a fellow fisherman and Leen’s Lodge veteran. I sent you way too much information with those 12 charts. I could have sent you a hundred, but I wanted to be kind. But there is a useful tool or benchmark for thinking about gold. This is an obscure market for American investors. Very few use it or look at it. It is the credit default swap (CDS) on the United States of America. The contract only applies to Treasury debt, not agency debt. There is a set of ISDA criteria to govern when they declare default. There has never been a default, but there have been close calls. The IRA: At least not since WWI. We won’t go back any further. Kotok: The CDS contracts on the US that have the most validity are priced in euro, and the trading is in Frankfurt. There’s a minor market in US dollars, but I ignore it. It doesn’t make sense to price the sovereign default risk of an issuer with its own currency. That makes no sense to me, but in America we have things that people do which don’t make sense as you and I have observed over many, many decades. So, I look at the CDS on the US denominated in euro. And there are three contracts: a one-year, five-year, and a ten-year CDS on a default by the US. And they are notional derivative contracts. I think of it as a form of credit insurance just like that credit insurance people use for municipal bonds. When we are not experiencing a debt ceiling political fight or not experiencing a shock of in Treasury finance, the size of that market is in the few billions. The IRA: The size of the CDS market varies with the dysfunction of American politics, so that makes volume in US CDS in euro a very interesting indicator, especially when it comes to gold. Kotok: Absolutely. You can see the reaction function in real time. When a certain politician attacks the Fed’s independence, the CDS price change is immediate. Every political event triggers a reaction. And the size of the market can quickly double or triple. So, it becomes measurable in trillions instead of billions. Remember, this is a credit insurance contract that focuses on the entire amount of outstanding Treasury debt. Currently, we are in the period between debt ceiling crises and the attack on the Fed by President Trump. The US CDS has calmed down after the Supreme’s decision to single out the Fed as a unique federal entity that is protected from POTUS executive whimsy. And so, the tradeable volume is back in billions, and pricing of CDS is less volatile. I use Bloomberg for source data on CDS. It’s the best composition and compilation and it’s consistently done. And so, right now, we’re in the billions and calm. The IRA: Even with the almost daily “look at me” outbursts from President Trump? That is surprising. Kotok: I was also surprised. But CDS is binary. We either default or we don’t. And the users are sophisticated international institutions. I believe they ignore the verbiage and crazy middle of the night social media postings. We either pay or we don’t. That is all the CDS players care about. If you look at the CDS chart, you can see the price reaction in the market-based price of a contract. It is simply a change in price of default risk insurance on America. Note that the market-based pricing mechanism says the risk is not zero anymore. It is small but it is not zero. That is the market’s opinion. You can see that in the one year contract when the debt ceiling fight ran down to the last minute. The Treasury General Account (TGA) at the Fed was under a hundred billion. In the eleventh hour, the one-year CDS traded over 100 basis points. Market agents were paying up for the protection. And remember, the agencies are not covered here. This is only about default on US Treasury debt. The IRA: Noted. The Treasury is getting ready to end the isolation of the Treasury General Account within the Fed and offer the cash out to the repo markets, a rather telling commentary on the state of things. Makes sense in terms of market liquidity, but illustrates irrelevance of the Fed in terms of US interest rate policy. Prior to 1921, the Treasury used to keep public cash deposited in banks, but we digress. Kotok: So, what I’ve done is to construct a term structure history of CDS starting with the Great Financial Crisis. My baseline is the Great Financial Crisis period. If we were ever going to have a shock test level of CDS, that was it. In my opinion, any earlier history is not relevant. At that time, in 2008, or thereabouts, the term structure of CDS, whether it was one year, five-year, ten year, was flat. And if you look at that pricing in 2008, it was six or seven or eight basis points. Single digit basis points. In other words, markets were not pricing a possible default in any meaningful way. Source: Bloomberg The IRA: The spread has widened since then. But very few Americans even know that there is a market price for American default. If you and I were to line up 100 Wall Street Journal reader-level investors and ask them, how does a derivatives contract settle on the credit default swaps of the United States, at least 99 would fail the test. Kotok: Yes. Maybe it is the obscurity that makes the CDS in euro so valid? The settlement provisions, if there ever is a default, are very clear but very intricate. And therefore, they have a cost. Because you need to settle with a certain Treasury security, there is a baseline settlement cost structure. In a US Treasury secured structure for US sovereign CDS, that settlement provision is maybe the six or seven or eight basis point cost. You must deliver a specified Treasury security. It’s defined very clearly by ISDA. So, we have a floor. CDS on the United States will never trade at zero. The IRA: So how does your work on US CDS relate to gold? Kotok: We can use the CDS pricing to estimate the probability of a US default. More importantly, since we have a term structure of CDS, we can measure the pricing of time to default. And that’s why a 10-year CDS is now 50 basis points and the five-year is, let’s say, 40 basis points, and the one-year is 20 basis points. The term structure is no longer flat. It is upward sloping. The IRA: Right. Nobody in Washington wants to talk about the federal debt. Kotok: So, if you subtract the roughly six or seven, eight or nine basis point noise for a settlement cost from the CDS price, the difference is the embedded cost of the credit risk or credit insurance on the United States of America. And you have four charts from me which show the one-year, five-year, ten-year CDS with annotations to show the price volatility. And the fourth chart above compares present day with 2008. The IRA: The sellers of CDS are those large institutions that hold in portfolios a sleeve of US Treasury debt. They own various maturities, and they have allocations, and they have their own risk management systems. Large sovereign wealth funds allocate more or less along the lines of the distribution of global reserves held by central banks. So, the US is maybe fifty-fifty-five percent of global reserves these days. Kotok: Correct. So, that’s why I use the euro CDS. Now what did I do? I took the CDS pricing in euro and then I tested it against the gold price in euro because I had to get to a common currency. And I said, well, what happens here? Is there forecast power from this term structure of CDS? And the answer is yes. The IRA: So, there is a useful benchmark for gold, but few people in the US ever think outside of dollars. How did you test your results? Kotok: What I found was the CDS pricing for a US default suggests a future change in the gold price. CDS pricing is a leading indicator of gold. But remember, relationship is denominated in euro, both items, not dollars. Naturally, I wanted to look for causality. I wanted to run Granger. But you know, causality is a bad word. I don’t like the word causality. It’s a mathematical term. It doesn’t say A causes B. What Granger Causality says is if something happens, we can establish a probability that something else will follow. We do not know why. Granger says here’s the likelihood of the linkage. It means every time this happened, this followed, so we can have some probability as to how much. If Granger is one, then it happens all the time. 100%. If Granger is minus 1 it never happens. If zero it is a coin flip. The IRA: And what was the result? Kotok: With the CDS term structure denominated in euro to forecast the price of gold denominated in euro, at intervals from three months out to 22 months, I found Granger of about 0.6. The IRA: Impressive. That is a very strong mathematical number. Very strong. It says sixty percent of the time you’re going to be right. Kotok: Yes. And I have a period of between 3 and 22 months where Granger is high before it starts to fade. Well, the interesting thing, you know, to Keith’s comment is that for an institutional guy, if you show him this, he will say, “Great, you have causality.” How does that make them include gold in their bucket for their clients? The IRA: And? Kotok: The conclusion I have is that this is not short-term trading vehicle. What it tells you is that reactive functions with gold are driven by forces quite different than other types of asset classes. And we already have a sense of that. But they are there. And they are in an intertemporal relationships which have a quite different time span than typical traders are accustomed to observing. The IRA: Western traders are impatient. They want to know when the gold price is going to go up tomorrow so they can buy it today and they want to sell it. Americans are like that, David. The rest of the world is not. The rest of the world cares about US default and they are long-term holders of gold because they are worried about US default. I think that is what you’ve hit on here. Kotok: Well, that’s exactly well said. But there’s a second element to it. We have a market-based pricing mechanism. So, we can make assessments of what those folks think, not by what they say, but by how they act when they set the price of the buy and the sell and come together with a price. And the CDS price gives us a pricing reference for credit insurance on the United States. And what do we know about it? We know as you go out in time, the price goes up. We know that we have a directional curve. We know we have a unit-based price per year because we have one, two, three, four, five years. We can interpolate three points and make a term structure. And we know it has mathematical efficacy because Granger is not zero, it’s a positive number. The IRA: So, based upon the CDS curve for credit default swaps on the United States priced in euro, institutional investors should be allocating to gold? We agree with that position, but most Americans never think of their investment horizons outside of dollars. The progressive project of FDR to brainwash Americans into thinking of fiat legal tender dollars as equal to gold succeeded, which is why we are working on a new book on gold. What is the basic message we should take from your work? Kotok: Chris, it’s very strong math. What it says to me is that every manager of institutional portfolios -- every institutional portfolio -- has to think about holding some gold. If they want to protect themselves against extremes of default risk, some allocation must be made permanently to gold. Now, should it be 3% or 4% or 5%? I don’t know. We can do what the Europeans are doing and go 50% into non-dollar assets. In other words, we are in dollars. So, the only way to address US default risk is for us to own gold or something else. Because for us to own the CDS in dollars, you know, it doesn’t work. But for us to use the CDS in euro price for guidance tells us what the rest of the world thinks about us. And that is critical. The IRA: No, owning dollar CDS to protect against a US default sure doesn’t work. But the euro CDS forecasting power with respect to gold is fascinating. Thanks David. We’ll be featuring the rest of our conversation with David Kotok about dollars, gold and Chinese yuan in our upcoming book, which will be serialized in The Institutional Risk Analyst later this year. Don’t forget to watch “The Wrap with Chris Whalen” on The Julia LaRoche Show every Saturday on YouTube to catch our discussion of what’s hot and what’s not in Washington and on Wall Street. The Institutional Risk Analyst (ISSN 2692-1812) is published by Whalen Global Advisors LLC and is provided for general informational purposes only and is not intended for trading purposes or financial advice. By making use of The Institutional Risk Analyst web site and content, the recipient thereof acknowledges and agrees to our copyright and the matters set forth below in this disclaimer. Whalen Global Advisors LLC makes no representation or warranty (express or implied) regarding the adequacy, accuracy or completeness of any information in The Institutional Risk Analyst. Information contained herein is obtained from public and private sources deemed reliable. Any analysis or statements contained in The Institutional Risk Analyst are preliminary and are not intended to be complete, and such information is qualified in its entirety. Any opinions or estimates contained in The Institutional Risk Analyst represent the judgment of Whalen Global Advisors LLC at this time, and is subject to change without notice. The Institutional Risk Analyst is not an offer to sell, or a solicitation of an offer to buy, any securities or instruments named or described herein. The Institutional Risk Analyst is not intended to provide, and must not be relied on for, accounting, legal, regulatory, tax, business, financial or related advice or investment recommendations. Whalen Global Advisors LLC is not acting as fiduciary or advisor with respect to the information contained herein. You must consult with your own advisors as to the legal, regulatory, tax, business, financial, investment and other aspects of the subjects addressed in The Institutional Risk Analyst. Interested parties are advised to contact Whalen Global Advisors LLC for more information.

In this issue of The Institutional Risk Analyst, we feature a guest post by Thomas Gober, a certified fraud examiner (CFE) and the founder and president of Thomas Gober Forensic Accounting Services. A former Mississippi Insurance Department examiner, his primary career focus for the past 40 years has been examinations and investigations of complex accounting fraud schemes in the insurance industry's financial reporting. Viva La Enron: Razor-Thin Surplus or Massive Deficit? By Thomas Gober July 31, 2026 | Large private credit/equity firms have taken control of many life and annuity insurers over the past decade, transforming them into higher risk, less transparent insurers. For the record, most of the for-profit insurers are also higher-risk, less transparent entities; but generally, not as extreme as the carriers controlled by private credit and private equity sponsors. Mainstream financial media increasingly warn that many of today’s private credit, private equity and commercial mortgage-backed securities are likely overvalued, illiquid and have overly optimistic ratings. Prominent investors portrayed in the film "The Big Short"—specifically Steve Eisman and Michael Burry—have recently issued warnings regarding private equity-backed life insurance companies and their heavy exposure to private credit. But as worrisome as overvaluation of assets may be, there is another danger lurking on the liabilities side: $1.3 trillion of affiliated “reinsurance” concentrated in just 40 carriers. As of December 31, 2025, the roughly 700 U.S. life and annuity carriers (L&A) reported combined assets of about $10 trillion. After deducting total liabilities, their combined capital surplus was $658 billion. Insurers are not allowed to go negative in terms of capital surplus. This makes surplus critical; it is the only buffer between solvency and insolvency. On the surface, liabilities are fairly easy to understand. For L&A carriers, their liabilities are basically long-term promises: future death claims and annuity payouts. Very capable actuaries make those calculations based on mathematics and probability factors. If their calculations are accurate, that should mean there are no adjustments necessary on the liabilities side of the balance sheet. This is where reinsurance can enter the picture. Insurance companies may purchase insurance protection known as reinsurance; a way for an insurance company to spread its risks. The ceding company will cede (transfer) a block of business to another company, the reinsurer. As an example, the insurer may cede a block of business that equals $10 billion in liabilities. But for the transaction to be legitimate, they must also move $10 billion in assets, commensurate with the liabilities. In this way, insurers spread their risks but otherwise surplus is not really impacted. This traditional form of genuine risk transfer reinsurance is not only legitimate, but it makes the world go round when it comes to insuring risk. Recently though, we’ve seen a rise in affiliated reinsurance. An insurance company or parent will form its own in-house reinsurance company and do the reinsurance with itself. As of December 31, 2025, there is a total of $1.5 trillion in-house affiliated reinsurance. Of the 700-U.S. L&A insurers, less than 200 are engaging in this practice and most of them are doing it only minimally. That’s the good news. The bad news is that if we pare the list down to only the top 40 users, they still account for $1.3 trillion of in-house, affiliated reinsurance. If you’re thinking that’s an awfully big number for only forty insurance carriers, you would be correct. No matter how you look at it, that’s a hefty amount of sleight-of-hand – and not compliant with the statutes in any of the 51 insurance regulatory jurisdictions in the United States. When a company does these deals with itself (related party transactions) there are two clear requirements. First: The transaction must be “fair and reasonable”. In other words, the transaction must be handled as if it were with a sophisticated and informed independent entity. So, if you offload $10 billion of liabilities with an independent reinsurer, they’ll require that you also send $10 billion in assets. The second requirement is transparency. To guarantee that these transactions are fair and reasonable, they must be transparent. We must be able to see both ends of the transaction. The National Association of Insurance Commissioners (NAIC) and all 50 states plus Puerto Rico mandate this. We must impose “fair and reasonable” on related parties; therefore, we must see both ends of the transaction. The statutes require: Material transactions by insurers with affiliates must be on (a) terms that are “fair and reasonable” and (e) “The books, accounts and records of each party to all such transactions shall be so maintained as to clearly and accurately disclose the nature and details of the transactions.” The problem with this type of “captive” reinsurance is that we can’t see the other end, the asset part of the transaction, at all. These 40 U.S. companies are ceding this $1.3 trillion to affiliated reinsurers in “secrecy jurisdictions.” These may include captive reinsurers in Vermont, Delaware, Iowa or Arizona in the U.S. Offshore venues include Bermuda, Barbados, and the Cayman Islands. The U.S. states who have embraced secrecy boast that their financial records cannot even be made available by subpoena. Our professional opinion is that these black box deals are prohibited by law even though state insurance regulators often turn their heads and allow it. What does it mean when the insurance regulators in most states ignore clear conflicts of interest and allow large insurers to reinsure their own risks? It means we have forty insurance companies with high concentrations of internal, opaque, captive and offshore reinsurance to the tune of $1.3 trillion. These same 40 carriers have only $182 billion in combined surplus. If just 20 percent of the reinsurance recoverables from these black box deals turn out to be uncollectible, these 40 carriers are insolvent. See the list below of the 40 carriers’ surplus & affiliated reinsurance. Source: NAIC Suppose you’re the CEO of a for-profit insurer, and you have stockholders who expect dividends. They want more dividends each year. You need a larger surplus to meet that demand. You can enlarge the surplus with fresh earnings or new paid-in capital, but it’s much less expensive and faster to create a captive reinsurer who will assume $10 billion in liabilities from you but, thanks to conflicted management and more flexible capital requirements in its jurisdiction, ask for only $5 billion in assets to back them. Instantly, poof, you add $5 billion to your surplus and your hungry stockholders get fed. How easy is that? Way too easy. The sad part of this story is that using a reinsurer in an honest and reasonable fashion is already a huge financial advantage and helps the US firms grow their capital surplus much faster. But that is apparently not enough for the executives of some dishonest carriers. The conflicted math that makes offshore reinsurance attractive to US insurers is why affiliated reinsurance ceded into secrecy jurisdictions is a great concern. Private credit and commercial mortgage-backed securities are also worrisome. But at least we can see assets and have their values re-assessed. But “black box” affiliated reinsurance is complex, arcane and impossible to confirm. As stated before, state insurance statutes require transparency. Nonetheless, this industry has more than $1.5 trillion of opaque, secret, captive reinsurance transactions that are hidden from state and federal regulators. Our research shows that the lion’s share of the black box deals are done by only 40 carriers. Since these affiliated reinsurers do not file public statutory annual statements, we don’t know how underfunded they may be. The first image below shows the affiliated reinsurance and surplus of all 700+ US L&A carriers. The 2nd image reflects just the top 40 L&A carriers: Source: NAIC Source: NAIC Note: All data related to reinsurance in the above images are taken from the December 31, 2025, statutory annual statements, Sch. S, Part 3, Section 1, col. 9 Reserve Credit and col. 14, Modified Coinsurance (ModCo). Whenever we’ve had an opportunity to peer into these black boxes—when an insurer posts them by accident or when an insolvent life insurer’s books are examined--the liabilities are found to be dramatically underfunded. One insurer went so far as to fund only 5% of its liabilities with real assets. Perhaps that’s why state regulators and the industry are so secretive. They don’t want us to know how big the hole is or how overvalued certain “assets” are compared to the true cash value. When a large private credit firm takes your money for an annuity or surplus note, then hides it offshore and says, “Trust me it’s fine,” chances are it’s anything but fine. The Institutional Risk Analyst (ISSN 2692-1812) is published by Whalen Global Advisors LLC and is provided for general informational purposes only and is not intended for trading purposes or financial advice. By making use of The Institutional Risk Analyst web site and content, the recipient thereof acknowledges and agrees to our copyright and the matters set forth below in this disclaimer. Whalen Global Advisors LLC makes no representation or warranty (express or implied) regarding the adequacy, accuracy or completeness of any information in The Institutional Risk Analyst. Information contained herein is obtained from public and private sources deemed reliable. Any analysis or statements contained in The Institutional Risk Analyst are preliminary and are not intended to be complete, and such information is qualified in its entirety. Any opinions or estimates contained in The Institutional Risk Analyst represent the judgment of Whalen Global Advisors LLC at this time, and is subject to change without notice. The Institutional Risk Analyst is not an offer to sell, or a solicitation of an offer to buy, any securities or instruments named or described herein. The Institutional Risk Analyst is not intended to provide, and must not be relied on for, accounting, legal, regulatory, tax, business, financial or related advice or investment recommendations. Whalen Global Advisors LLC is not acting as fiduciary or advisor with respect to the information contained herein. You must consult with your own advisors as to the legal, regulatory, tax, business, financial, investment and other aspects of the subjects addressed in The Institutional Risk Analyst. Interested parties are advised to contact Whalen Global Advisors LLC for more information.

July 29, 2026 | This weekend we’ll update the WGA Bank Top 50 listing for our subscribers to the IRA Premium Service. Next weekend we'll be updating out listing of gold, silver and miner stocks in the WGA Precious Metals Top 25. Don't forget to watch “The Wrap with Chris Whalen” on The Julia LaRoche Show every Saturday on YouTube to catch our discussion of what’s hot and what’s not in Washington and on Wall Street. Banks in the US tend to report earnings in the first couple of weeks after the quarter close, while nonbanks and mortgage issuers tend to release earnings later in the reporting period. As we noted previously, the bank group is performing well financially due to huge capital markets volumes and the larger stocks have managed to rise nearly 30% in the past 12 months despite the market muddle of rising interest rates and inflation. One of the remarkable developments over the past week were reports that several large banks have decided to add to exposure to commercial real estate, this as default rates on CRE are bottoming and quality collateral is fast disappearing into private balance sheets. “Big banks are on the hunt to grow their loan books and are turning back to an area they had shunned not that long ago,” notes Ben Gillman of the Wall Street Journal. The relatively low volumes in agency and government loans is forcing larger banks to add more CRE to their asset menu. The chart below shows default rates for the $1.2 trillion in non-owner occupied commercial real estate held in bank portfolios. Part of the reason that default rates have been falling is the growing crowd of investors just waiting to acquire commercial properties. Notice in the second chart that loss given default (LGD) actually skewed negative in 2016-2017 when investor demand for CRE surged, but not during COVID. Source: FDIC Notice in the chart below that even as CRE loan delinquency rates have fallen, loss severities for defaulted commercial real estate loans owned by banks are still over 80% of the loan amount. Although loss given default or LGD on residential assets is still near zero due to elevated home prices, loss severity on CRE still suggests a fundamental problem with the sector. Likewise, LGD on bank-owned multifamily assets is closer to 100% of the loan amount. Source: FDIC Bank OZK

"A good money, like good law, must operate without regard to the effect that decisions of the issuer will have on known groups or individuals. A benevolent dictator might conceivably disregard these effects; no democratic government dependent on a number of special interests can possibly do so.” F. A. Hayek Denationalization of Money Institute of Economic Affairs (1978) July 27, 2026 | In this special edition of The Institutional Risk Analyst, we feature a conversation with Monetary Metals founder Keith Weiner, an economist who is a leading authority in the areas of gold, money, and credit. Keith has made important contributions to monetary theory and written some serious research in the sector. Before Monetary Metals, he founded DiamondWare, a software company that developed 3D voice technology, sold to Nortel in 2008. He is the President of the Gold Standard Institute USA. He earned his PhD from the New Austrian School of Economics. Keith spoke to us last week from London. The IRA: Good morning, Keith. You're an Austrian school adherent which is not the norm for successful business people. We largely agree with the Austrian perspective. As F.A. Hayek noted no democracy can have sound money. The debt grows and essentially impairs all value in a creeping nationalization. We don't know what we're going to do with this current economy though. Inflation (a/k/a “affordability”) is turning everybody into socialists, so what are you going to do? Weiner: No, that's right. It often seems that policy interventions unintentionally create new challenges, which then leads to calls for even more government involvement. I consider myself really to be a serial entrepreneur. I majored in computer science back in college. Dropped out of school to follow the dream that so many of my heroes did before me and build a software company. I sold that software company, it was called DiamondWare, to Nortel Networks in 2008. The IRA: You sold the company on the eve of the Great Financial crisis, quite a feat. Weiner: The whole process of the deal was really extraordinary for us. Nortel was doing several deals in 2008 and we closed our transaction literally before the wheels came off of the technology sector and the entire US economy. It's very surreal to go through that, watching everything go over the edge. And that’s when I started to study gold. I was aware of free market ideas. I'm an Objectivist and Ayn Rand fan. I was aware of gold and the idea of free markets. But my nose was to the grindstone building a business. You get to that point of monetizing your work and now the world is going into the abyss. And I thought, how do I protect myself? DiamondWare represented 14 years of work and energy. I could never get that back. I didn't want to lose it to a Bear Stearns or to a Lehman or who knows how many other banks were about to fail. I felt like a moth drawn to a flame with gold, just obsessively studying everything I could get my hands on. I made it through the GFC basically, 100% in cash. You want to talk about luck? If the transaction had closed six months earlier, I would have bought all kinds of investments, probably, and taken a significant loss in the GFC. But after that, I started to get more and more interested in the idea of gold. I came across the writings of the Hungarian professor Antal E. Fekete and without really intending to, became a student of his ideas. The IRA: Fascinating personal history. Most of us with fiat assets tied to stocks or mortgages were broke in 2008 and several years after, so your reaction is very logical. We often think that the manic, hysterical speculation we see in markets today is a legacy of the shock of 2008. A whole generation of investors came close to being wiped out until the Fed under Chairman Ben Bernanke rode to the rescue with more debt and inflation. How did you decide to start Monetary Metals? Weiner: My development team had followed me to hell and back, and they said, when's the next gig? Ready to jump, right? But while the work in software was real, I came to think of gold as the solution to the bigger problem we have now. In a normal world, it would have been another software company, but we do not live in a normal world. The IRA: No, as we wrote in our book Inflated: “Money, Debt and the American Dream,” Americans don’t like to pay taxes. Winning WWII and the Cold War gave us the idea that the rules do not apply to us. The New Deal, the Great Society, and $40 trillion in federal debt, are all baby steps to socialism. Like the Greeks and Romans before us did to their money, we are destroying the dollar. Weiner: Precisely. So, I said to my team, well, unfortunately, I'm going into gold. I have a big software team now, but at that time, I didn't know what I needed. And so, I just thought, OK, I want to be part of the solution. And I thought that in a gold system, interest or a return on metal is the key to the whole thing. The IRA: An elegant conception. Weiner: So I said the return on gold, the interest rate, in the gold standard is the regulator of flow into the market. And if the interest rate's zero, you've got no flow. And if the interest rate is maxed out, whatever that may be— marginal time preference, ordinary rate of interest, whatever you want to call it— then you get flow of gold to the market. And settings in between. So, I said, okay, that becomes a business thesis. Let's offer interest on gold and draw gold into the market and avert the disaster that I saw coming. And I wrote a paper called 'When Gold Backwardation Becomes Permanent.'” The IRA: Great paper. You said in 2012 gold was not in shortage. Do you still hold that view on the supply-demand balance? Don't forget to watch “The Wrap with Chris Whalen” on The Julia LaRoche Show every Saturday on YouTube to catch our discussion of what’s hot and what’s not in the world of finance and investing. Weiner: Backwardation is the best measure of shortage. Backwardation happened for one day during the depths of the episode when Gordon Brown sold half the UK’s gold between 1999 and 2002. And it happened for a few days in December 2009. But it was not happening in 2012. The IRA: At the moment, market commentators say that the price of gold is weak because of the prospect of higher interest rates. Last year, it didn't matter. But today, it seems to matter. At least people think it matters. What is your view of the link between gold prices and interest rates on fiat? Weiner: We produce an annual gold market outlook report. And over the years, we've looked at all the various things that are alleged to be correlated to or causal of the gold price. And interest rates, inflation, and interest rates are the ones that come up the most. We looked at, I don't know if it was the Fed funds rate or the one-week T-bill rate, which are obviously almost perfectly the same. The IRA: The FOMC killed the Fed funds market years ago when they turned it into a policy tool. T-bills is probably the best market indicator. Weiner: We looked at 10-year Treasury notes. We looked at so-called real interest rates, TIPS. And over a long period of time, of time there just isn't a correlation. The thing that makes gold unique is that it doesn't correlate with anything but in shorter time windows it can absolutely get into a pattern where gold is moving in relation to other markets. You can look at the war with Iran and oil prices, and gold was almost perfectly inverse to oil prices. And trading was essentially influenced by news of whether the war is about to be over, whether it's going to escalate. And for long periods of time, that's not so. When the Fed says okay, we're cutting rates, suddenly the apparent connection disappears. The IRA: In western markets, investors tend to think of gold prices as just another short-term indicator price. The Fed’s interest rate cuts from last year tended to be a negative, at least in terms of what people think, and mostly in the West. If you're out in Asia, in Shanghai, or in India, you get a very different view of the world. Weiner: Oh yeah, and also include Turkey and the Arab world. I spent a fair bit of time in the Middle East. They don't perceive gold the same way as Americans at all. But the irony of the whole thing is that, number one, is that we're in this very long-term falling rates cycle. I published my paper on the Theory of Interest Rates and Prices and why that's so. The IRA: As you’ve written, the problem is debt. Total worldwide debt (government, corporate, and household) stands at a staggering $353 trillion. This equates to roughly 305% of global GDP, meaning the world owes more than three times what it produces in an entire year. And much of this debt is bad and will never be redeemed. We are in what Minsky labeled the third or Ponzi Phase, where debtors issue more debt or stock to avoid default. The phenomenon of payment-in-kind (PIK) by zombie private equity portfolio companies illustrates the larger problem. Weiner: Right. Debt is a very long-term cycle. I'm sure you've looked at the zombie problem. Before 2022, something like 20% of all corporate debt was zombie debt. I have not seen an update of that BIS graph by in years, but one can only imagine how much greater a percentage is zombie debt at these rates versus essentially zero. Source: BIS The IRA: The BIS updated the original paper by Ryan Niladri Banerjee and Boris Hofmann in 2022, but the problem has gotten far worse as the private equity/credit sector has grown. Moody's reports that default rates on private equity portfolio companies are in the high teens or a "CCC" bond rating equivalent. So from the perspective of gold, how does this cycle of debt accumulation in fiat currencies end? Weiner: The key point to make about gold and an eventual backwardation isn't a gold price correlation to interest rates, but a gold basis correlation to interest rates. The basis spread is far more important than the price level when we talk about gold. In my backwardation thesis, I argue that we'll get to a point where essentially gold withdraws its bid on the dollar entirely. And gold goes into permanent backwardation. Gold for spot delivery becomes more and more and more expensive relative to a contract to deliver it in the future, which is essential. The dollar becomes entirely distrusted and devalued until eventually people will experience hyperinflation. But more than a devaluation of money the backwardation of gold really represents a collapse in trust of the monetary system and the counterparty— not a quantity of dollars —phenomenon. The IRA: It's a psychological thing, too, because in the West, they mostly speculate on price, whereas in the Far East and India and Turkey and those other markets, they want to take delivery of physical gold. They want the metal. Weiner: Absolutely. I've had this discussion with several of the prominent gold analysts. They always break down gold demand and draw graphs of demand curves. They always talk about jewelry and investment as two different categories. And I'm like, you need to spend a little bit of time in India. Because they don't make that distinction that you do. Gold jewelry is investment demand in India. It's higher quality, higher gold content than jewelry in the Europe or the US. In the Middle East, India and much of Asia, fine gold objects are money. The IRA: Keith, Monetary Metals has developed a model to pay investors a return on gold holdings. How does this change the calculus of the cost of holding physical gold? Weiner: There's research that most of the major private wealth groups at the big banks have done over the decades. And that is, what if you took a standard 60-40 portfolio and you put a little slug of gold in it? Call it 4%. And so, then they measure, okay, what do you get in terms of results from this? If you measure the results over decades. They find that you get slightly better returns with an allocation to gold. Not so much to write home about, but more importantly, you get lower volatility, smaller drawdowns, better Sharpe ratio. Hmm. So that makes sense, right? The IRA: Yes. Please continue. Weiner: Now, the problem is when they use an index value for Treasuries and for stocks like the S&P 500 and for gold, they'll use the London Bullion Market Association fix or something like that. OK, but the problem is for stocks and for Treasuries, what you get in your portfolio is a pretty good match for that benchmark. But for gold, there's a real cost to carry physical metal. Our average customer is paying 75bps for storage before they sign up for Monetary Metals. But if you plug in even 50 basis points of cost, the investment scenario for gold is less attractive than holding securities. The private individuals can get excited about betting on gold's going to be $50,000 by tomorrow morning, but institutions don't function that way. The cost of holding physical gold is a disincentive for institutional investors. The IRA: Correct. We have had this conversation with many institutional investors. So how does paying a return on gold change the investment scenario? Weiner: We replicated the original research as the banks have done it, having accurately included the cost of carry, to reflect the real world. Then we did a third scenario: we said, what if you got three percent interest on that gold instead of a negative cost of carry? We're actually paying our customers four percent on gold at the moment, but we modeled it with just three. And at 3% interest, first of all, over decades, the upside of just having a little bit, 4% of gold in your portfolio, runs away. It's not a small amount. Right. And the Sharpe ratio is even better. Drawdowns are even smaller. Volatility is even better. And so, from an institutional standpoint or even for an individual investor like a family office who thinks institutionally, it makes a ton of sense. When Monetary Metals offers a way for investors to earn a return on gold apart from the price appreciation of the metal, the prospective investment return changes dramatically. But if you increase that allocation to gold from 4% to 8% to 10% to 12%, the scenario continues to get sweeter. I think, as far as having 20% of the portfolio being gold, we never wanted to go on record of saying that or suggesting that or anything because people will say that's crazy talk. The IRA: Maybe not so crazy. We have about 15% exposure to gold and silver in our portfolio today. When you look at the growing pile of public and private debt around the world and how much of it will never be repaid, maybe having 20% exposure to gold and silver does not sound so crazy Keith. Thank you for your time. The Institutional Risk Analyst (ISSN 2692-1812) is published by Whalen Global Advisors LLC and is provided for general informational purposes only and is not intended for trading purposes or financial advice. By making use of The Institutional Risk Analyst web site and content, the recipient thereof acknowledges and agrees to our copyright and the matters set forth below in this disclaimer. Whalen Global Advisors LLC makes no representation or warranty (express or implied) regarding the adequacy, accuracy or completeness of any information in The Institutional Risk Analyst. Information contained herein is obtained from public and private sources deemed reliable. Any analysis or statements contained in The Institutional Risk Analyst are preliminary and are not intended to be complete, and such information is qualified in its entirety. Any opinions or estimates contained in The Institutional Risk Analyst represent the judgment of Whalen Global Advisors LLC at this time, and is subject to change without notice. The Institutional Risk Analyst is not an offer to sell, or a solicitation of an offer to buy, any securities or instruments named or described herein. The Institutional Risk Analyst is not intended to provide, and must not be relied on for, accounting, legal, regulatory, tax, business, financial or related advice or investment recommendations. Whalen Global Advisors LLC is not acting as fiduciary or advisor with respect to the information contained herein. You must consult with your own advisors as to the legal, regulatory, tax, business, financial, investment and other aspects of the subjects addressed in The Institutional Risk Analyst. Interested parties are advised to contact Whalen Global Advisors LLC for more information.

July 23, 2026 | Over the past year, a number of readers of The Institutional Risk Analyst have asked us about stable coins and the connection to the Treasury market. The short answer is that stable coins were initially touted by members of the Trump Administration as a means to increase purchases of Treasury securities, but we discounted such prognostications. Treasury Secretary Scott Bessent, for example, argued that the "tenfold" growth of stablecoins would create massive new private-sector demand for U.S. government debt. Because stablecoins are typically backed by reserves, an expanding ecosystem directly translates to heavy purchasing of short-term Treasury bills, right? Bessent believed incredibly that growth in stablecoins would help lower government borrowing costs and rein in the national debt. Neither of these things happened. Bessent stated early in the Trump Administration that expanding the stablecoin market will create a "surge in demand for US Treasuries, which back stablecoins," but he was clearly mistaken. Other luminaries like Goldman Sachs CEO David Solomon predicted a stablecoin gold rush. Nope. In fact, growth in stablecoins has slowed dramatically as the value of bitcoin and other speculative tokens has plummeted. Notice that Bessent has not had much to say on the subject of stablecoins recently as Treasury yields have steadily risen. Indeed, the exuberant enthusiasm toward crypto tokens and stablecoins has largely evaporated in recent months, at least so far as Wall Street firms are concerned. To us, a stable coin is simply a prepaid gift card with a new tech wrapper. You give the issuer of the stablecoin your fiat dollar and they give you a token called a “stablecoin” which they promise to redeem at the same value. You may be required to pay a fee for the purchase of the stablecoin. The issuer takes your cash and invests the proceeds in Treasury securities, Ginnie Mae MBS or bank deposits to fulfill the promise to redeem at par. As you can see, the issuer of the stablecoin does buys high-quality liquid assets (HQLA), but does this result in a net increase in Treasury purchases overall? Probably not. The cash used to buy the stablecoin likely came from a bank, so when the funds were withdrawn from the bank to buy the stablecoin, the bank sold HQLA. A reader of The IRA asked: “Can you shed light on something disturbing I recently heard about? Because world governments are not buying and/or have sold massive amounts of US Treasuries, the big one being China, stablecoins will be issued so that anyone will be able to purchase US Treasuries, thru the banks.” The short answer is no. The CLARITY Act's (Digital Asset Market Clarity Act) proposed stablecoin provisions ban passive, bank-like interest payments on stablecoins. To protect the traditional banking sector from deposit flight, it prohibits intermediaries from offering yields that are "economically or functionally equivalent" to interest-bearing bank deposits, while permitting activity-based rewards. Early on, the SEC determined that a stablecoin that offered a set yield was a security and required a registration statement. As we noted last September (“Trading Points: Klarna & Figure IPOs”), Figure Technology Solutions (FIGR) created an SEC-registered stablecoin that bears interested, which is of course a security. Such instruments will be banned if the CLARITY Act becomes law. Because passive yield on platforms is restricted under the CLARITY Act, investors looking for yields on digital dollars are expected to shift capital toward regulated investment vehicles like tokenized Treasury products and money market funds. Of course, the dollar was the first digital currency, but the massive hype around crypto tokens and stablecoins has obscured this basic fact. Our advice to our readers is that if you want to earn a yield on HQLA, buy Treasury securities directly or via a registered money market fund, or a deposit from an FDIC insured bank. There are many other securities that offer safe yield, but to us buying a stablecoin is a waste of money unless there is some price incentive offered up front. So for example, if Amazon (AMZN) offers you a stablecoin at a discount and w/o fees for purchases on their portal, then that may be an attractive offering. Again, the only use case for stablecoins that makes any sense to us is as a prepaid gift card. Purchasing tokenized assets like Treasury securities is a crap shoot, in our view, where the credit standing of the counterparty issuing the token is paramount. On July 11, the 21st Century ROAD to Housing Act (H.R. 6644) became law without the President’s signature. The bill includes a prohibition on the issuance of another act of idiocy known as a central bank digital currency (CBDC) until December 31, 2030. Since the dollar was the first CBDC, a legal prohibition makes enormous sense and should be made permanent. CBDC’s illustrates how inane the discussion of stablecoins and other tokens has become, since both ideas have little practical application beyond earning profits for the promoters. The CLARITY Act shifts the stablecoin use case primarily toward payments and commercial transactions rather than passive savings, fulfilling a big demand from the banking industry. It restricts the payment of yield or interest simply for holding stablecoins, but explicitly permits rewards tied to active usage like transfers, merchant payments, and loyalty programs – a/k/a gift cards. With or without the CLARITY Act, the payments use case for stablecoins is fast being eroded by innovations in rapid cash transfer networks for dollars. As the payment use case for stablecoins evaporates, the only purpose for these tokens will be money laundering. Indeed, when you examine the CLARITY Act closely, the big question is why the crypto industry would support it at all. As we predicted years ago, the CLARITY Act formally designates digital asset intermediaries as Bank Secrecy Act (BSA) financial institutions. This legally mandates that digital commodity brokers, dealers, and exchanges enforce rigorous Anti-Money Laundering (AML), Customer Identification Programs (CIP), and Know-Your-Customer (KYC) controls. Somewhere, Satoshi Nakamoto is laughing. The Institutional Risk Analyst (ISSN 2692-1812) is published by Whalen Global Advisors LLC and is provided for general informational purposes only and is not intended for trading purposes or financial advice. By making use of The Institutional Risk Analyst web site and content, the recipient thereof acknowledges and agrees to our copyright and the matters set forth below in this disclaimer. Whalen Global Advisors LLC makes no representation or warranty (express or implied) regarding the adequacy, accuracy or completeness of any information in The Institutional Risk Analyst. Information contained herein is obtained from public and private sources deemed reliable. Any analysis or statements contained in The Institutional Risk Analyst are preliminary and are not intended to be complete, and such information is qualified in its entirety. Any opinions or estimates contained in The Institutional Risk Analyst represent the judgment of Whalen Global Advisors LLC at this time, and is subject to change without notice. The Institutional Risk Analyst is not an offer to sell, or a solicitation of an offer to buy, any securities or instruments named or described herein. The Institutional Risk Analyst is not intended to provide, and must not be relied on for, accounting, legal, regulatory, tax, business, financial or related advice or investment recommendations. Whalen Global Advisors LLC is not acting as fiduciary or advisor with respect to the information contained herein. You must consult with your own advisors as to the legal, regulatory, tax, business, financial, investment and other aspects of the subjects addressed in The Institutional Risk Analyst. Interested parties are advised to contact Whalen Global Advisors LLC for more information.

July 19, 2026 | In this issue of The Institutional Risk Analyst, we provide some additional thoughts on bank earnings below for our Premium Service subscribers. But we cannot fail to comment on the fact that the Bureau of Labor Statistics (BLS) has decided to alter how it measures several components of a price gauge watched by Fed, reports Matt Grossman of the Wall Street Journal. As we noted some time back, whenever the pseudo conversation in Washington regarding inflation (a/k/a “affordability”) becomes difficult, the BLS and/or the Fed moves the goalposts. Just as nobody in Washington wants to talk about the budget deficit or the impending collapse of Social Security, the conversation about inflation is totally contrived and false. The real question we ask, of course, is how can the FOMC even talk credibly about a 2% inflation target when the Treasury is running a fiscal deficit of 6% of GDP? A budget deficit contributes to inflation primarily by increasing aggregate demand, which occurs when the government injects more money into the economy through spending than it removes through taxation. Excess demand pushes up prices for goods and services, especially if the economy is operating near its full employment and production capacity. Rather than raising interest rates, Federal Reserve Board Chairman Kevin Warsh should borrow a page from our old friend Fed Chairman Arthur Burns and demand that the Congress reduce the budget deficit in the name of addressing affordability. The Fed could then reduce the size of its balance sheet in a market awash with excess cash and benefit from a little long-delayed deflation. If the Congress started to cut the budget deficit, interest rates would fall precipitously as the supply of Treasury collateral became insufficient to meet the demand from domestic and foreign investors. Remember, a chief demand for Treasury debt is for collateral in short-term dollar financing transactions (a/k/a "swaps"). Years of budget deficits and quantitative easing would put enormous downward pressure on interest rates, unlocking a significant economic boom and reversing years of inflationary fiscal and monetary policy. Goldman Sachs Ex-Apple Card

This week in “The Wrap,” we feature the top events in Washington and on Wall Street over the past week. You are invited to watch “The Wrap with Chris Whalen” on The Julia LaRoche Show every Saturday on YouTube to catch our discussion of what’s hot and what’s not in the world of finance and investing. A playback of our quarterly call this week for subscribers to the Premium Service is available at the bottom of this comment. July 17, 2026 | Updated | Bank earnings for the major banks exploded this week, with record volumes for trading and investment banking. The banks continued to report lower credit expenses and asset yields, however a striking counterpoint to the robust market returns. Meanwhile, risks to the largest banks continues to increase in both public and private markets, as we discuss in our last post (“Trading Points: Bank Earnings Soar and So Does Market/Credit Risk”). Taiwan Semiconductor Manufacturing (TSM) posted its fifth straight quarter of record earnings this week, the Wall Street Journal reported, but the Nasdaq slipped 1.5%, with tech darlings including Sandisk (SNDK), Western Digital (WDC) and Marvell Technologies (MRVL) among the big losers. The PHLX Semiconductor index was off 4.3%. SpaceX’s (SPCX) post-IPO performance is trailing this year’s top-10 blockbuster debuts. The renewed fighting between the US and Iran again jeopardizes global oil supplies, after stockpiles were drained earlier in the conflict, Reuters reports. “We’ve burned through all of the buffers we had. Everything,” one trader told the Financial Times. Energy markets had some slack to absorb the first shock, but that cushion is “smaller and shrinking further.” We continue to be concerned about shortages of refined products and particular grades of petroleum in 2H 2026. Fed Chairman Kevin Warsh testified before Congress this week. He assured the House Financial Services Committee that he and the FOMC will get inflation down to 2%, but didn’t say precisely how they will do it. More to come. Warsh imitated his late great predecessor Alan Greenspan, saying far less than his most recent predecessors did in such hearings. Warsh added that “inflation is a choice. We monetary policy makers need to choose lower prices, and that’s the commitment my colleagues have made.” But he noted that some things that can affect prices, like “conflicts overseas,” are out of the Fed’s control, making us wonder if the FOMC will not ignore war-related inflation. “Odds have cooled slightly for the Fed to raise rates at its upcoming meeting,” writes Eric Hagen at BTIG, “even though commentary surrounding the pace of winding down the balance sheet is arguably the bigger focal point, especially with a somewhat more lackluster picture for deposit growth at the G-SIBs and large regional banks. Hawkish equity investors are tiptoeing around the equity REITs and mortgage REITs, even if stocks have historically achieved stronger valuations with the 10-Yr at higher levels.” The big question we highlight this week is why are bank asset returns falling while bond market yields are rising? To us, the downward pressure on asset returns and loan growth simply illustrates the vast amount of cash looking for returns. That is, inflation. Whether we look at AI stocks or bank lending to private credit or non-QM loans, the demand for earning assets is pushing prices up and yields lower. Take the housing market for example. Existing home sales unexpectedly dropped by 2.4% in June 2026 to a seasonally adjusted annual rate of 4.09 million units. Concurrently, the median home price climbed to a historic high of $440,600, while total unsold inventory sat at 1.56 million units, representing a 4.6-month supply. Any belief that rising interest rates would force down home prices seems to be a very distant hope indeed. Circle Internet (CRCL) won OCC approval for First National Digital Currency Bank, allowing it to custody digital assets and, eventually, hold USDC reserves under direct federal supervision. Shares rose more than 10% after the announcement, but the stock is still down significantly over the past year. We would remind readers that when fintech companies go public or win bank charters, that usually means that the stock is about to become decidedly boring. For example, private payments platform Stripe and and private equity firm Advent International have made a joint offer to acquire PayPal Holdings (PYPL), according to Reuters. The proposed deal would value the payments company at more than $53 billion, but the fact is that PYPL has languished for the past five years. PayPal stock has suffered significantly over the past 5 years due to intense competition, margin contraction, slowing online checkout growth, and a post-pandemic drop in consumer retail spending. This shift from a high-growth darling to a deep-value play caused the stock to plummet from its 2021 peaks. “If PayPal accepts, the deal would pair Stripe's Bridge and Privy stablecoin infrastructure with PayPal's PYUSD token and crypto-trading business,” notes The Defiant, “consolidating two mainstream payments companies' stablecoin operations into one.” Fair enough, but will the malaise that has hobbled PYPL now infect Stripe? We still struggle to formulate a business use case for stablecoins, which most closely resemble a prepaid gift card in economic terms. Gold and silver prices have tumbled over the past five trading days, driven lower by escalating Middle East geopolitical tensions that spiked crude oil prices. This energy rally revived inflation concerns and strengthened expectations that the Federal Reserve could keep interest rates elevated, putting heavy pressure on non-yielding precious metals. But of course if you are looking for a way to earn a yield on precious metals, you should contact our sponsor Monetary Metals. Recent Posts Trading Points: Bank Earnings Soar and So Does Market & Credit Risk https://www.theinstitutionalriskanalyst.com/post/theira868 Mortgage Notes: Desperately Selling DSCR; Can UWMC Pivot to Stability? https://www.theinstitutionalriskanalyst.com/post/theira867 The Institutional Risk Analyst (ISSN 2692-1812) is published by Whalen Global Advisors LLC and is provided for general informational purposes only and is not intended for trading purposes or financial advice. By making use of The Institutional Risk Analyst web site and content, the recipient thereof acknowledges and agrees to our copyright and the matters set forth below in this disclaimer. Whalen Global Advisors LLC makes no representation or warranty (express or implied) regarding the adequacy, accuracy or completeness of any information in The Institutional Risk Analyst. Information contained herein is obtained from public and private sources deemed reliable. Any analysis or statements contained in The Institutional Risk Analyst are preliminary and are not intended to be complete, and such information is qualified in its entirety. Any opinions or estimates contained in The Institutional Risk Analyst represent the judgment of Whalen Global Advisors LLC at this time, and is subject to change without notice. The Institutional Risk Analyst is not an offer to sell, or a solicitation of an offer to buy, any securities or instruments named or described herein. The Institutional Risk Analyst is not intended to provide, and must not be relied on for, accounting, legal, regulatory, tax, business, financial or related advice or investment recommendations. Whalen Global Advisors LLC is not acting as fiduciary or advisor with respect to the information contained herein. You must consult with your own advisors as to the legal, regulatory, tax, business, financial, investment and other aspects of the subjects addressed in The Institutional Risk Analyst. Interested parties are advised to contact Whalen Global Advisors LLC for more information. Subscribers please login to download the audio playback recording of this week's quarterly call below.