What the Silicon Valley Bank Collapse Means for Europeans
After frantic hours trying to find a buyer for the defunct Bank of Silicon Valley, the US government has come up with a plan to strengthen the banking sector.
Over the weekend, US regulators implemented an emergency funding plan to ensure sufficient liquidity in the banking system, closed another lender – Signature Bank – and ensured bank customers had access to their deposits as they tried to limit the fallout from the implosion of the SVB.
Will the collapse of the SVB bring a financial crisis similar to that of 2008?
The collapse of the Bank of Silicon Valley is the biggest bank failure since the 2008 global financial crisis.
But the bank’s downfall is unlikely to lead to a financial crisis as deep and painful as the one that followed Lehman Brothers’ bankruptcy at the time.
First, US banking authorities intervened early. “Decisive action” by regulators has reduced the risk of further bank failures, Moritz Schularick, professor of economics at the University of Bonn, told DW.
Second, the United States today has much stricter regulations for banks, especially for the biggest banks like JP Morgan, Bank of America and Goldman Sachs. As a result, US banks are in much better financial health, in contrast to their overleveraged balance sheets in 2008.
But Schularick warns the world must be “alert” to the wide-ranging problems facing the global financial sector at a time when central banks are raising interest rates at a frantic pace to curb inflation.
“These things are inherently difficult to predict, and the truth is that the problems that brought down Silicon Valley Bank and Signature Bank are not limited to those two banks,” Schularick said. “So the question is, who else is there?”
On Tuesday, Moody’s placed six other regional US banks, including First Republic Bank, Zions Bancorporation and Western Alliance Bancorp, under review for downgrade.
Source: DW
Lori Barajas is an accomplished journalist, known for her insightful and thought-provoking writing on economy. She currently works as a writer at 247 news reel. With a passion for understanding the economy, Lori’s writing delves deep into the financial issues that matter most, providing readers with a unique perspective on current events.