US Financial Turbulence: A Bad Omen for the Country’s Economy? 

  • SVB’s collapse created a ripple effect
  • The biggest Banking failure of 2023- SVB, Silvergate, Signature, and First Republican Bank

The US financial contagion fueled the market volatility creating a ripple effect resulting in another banking failure. 

Credit Suisse, a global investment bank and financial services firm, is the latest lending unit added to the list of banks facing financial trouble. Last month, the bank confirmed its biggest annual loss of 7.29 billion after its clients withdrew approximately 110 billion dollars. Credit Suisse shares have lost over 75% of their value over the past twelve months.

Swiss central bank came forward for the rescue with $54 billion to shore up the balance sheet. Yet the critics believe the endowment will not be enough. 

US Banking Failures Unveils the Increasing Risk to the Economy

The period of financial turbulence casts doubt on the duration of this uncertainty. According to analysts at Allianz, a German financial services company, there is a risk of a credit crisis if the monetary policy tightens too quickly. This could cause problems in the funding markets and put pressure on banks that have increasing asset-liability mismatches.

They further stated that the Silicon Valley Bank meltdown indicates increasing tension within the financial system. The reference to SVB highlights current challenges in the sector. 

According to US Federal Deposit Insurance Corporation data, there has been 563 bank collapse since 2001. Specifically, from 2008 to 2011, there were 414 banking meltdowns. The highest number of banking meltdowns in a single year occurred in 2010, with 157 instances.

Silicon Valley Bank Collapse

SVB became the second-largest financial institutional failure in the U.S. SVB’s fallout has shaken the global stock market, which lost about 465 billion dollars. US Federal Deposit Insurance Corporation created a bridge bank to hold the assets of former SVB clients. 

First Republican Bank

A San Fransisco-based mid-sized lender, First Republican Bank, got infected with SVB’s financial contagion. Numerous major banks moved forward to stem the market meltdown by providing a liquidity injection of $30 billion to cure the liquidity crunch.

The Secretary of the US Treasury, Janet Yellen, aimed to assuage concerns by reassuring the Senate Financial Committee that the U.S. Banking system is still stable. Yellen emphasized that American depositors need not worry since their deposits are secured and accessible when needed. 

Signature Bank

Wall Street Journal reported that the crypto market downturn affected Silvergate and Signature bank. Furthermore, SVB’s failure caused panic, leading to a banking crisis. Regulators claim that the panic withdrawal of ten billion dollars in a single day created a system failure resulting in the third biggest banking failure in the U.S.

The major concern is that most banks that collapsed over the past few weeks had a strong connection with startups and cryptocurrency. Will this transform the regulatory policies? Another concern is that banks can become more conservative in their lending.