A swift intervention by the US Federal Reserve has kept most banks on their feet, but September/October is often the time when financial crises come to a head.
Social media provides both a forum for communication and a public signal about what a bank’s customers believe. That means Twitter can facilitate coordination in real time.
The cause of banking crises since the debacle in the 1980s remains unchanged. Incentives encourage executives to take excessive risks, with few consequences if bets turn bad. It’s happening again.
Financial crises are inevitably followed by legislation to restructure the banking system, and the ongoing problems with bank stability are likely to be no exception.
Crises fueled by bank runs, starting with the Great Depression, have had something in common: Unexpected changes spur bank failures, followed by general panic and then large-scale economic distress.
Confidence in banking is hard-earned and easily shocked. This makes individual banks and the banking sector susceptible to knock-on effects from other institutions.
The failure of Silicon Valley Bank has raised questions about some of the consequences when the government steps in to protect the depositors of troubled banks.
The collapse of Silicon Valley Bank serves as a reminder of the importance of robust risk management, sound regulatory oversight and effective liquidity management.
The Fed, Treasury and FDIC acted swiftly to protect depositors and stem any panic, but anxiety continues to grow about the state of the global financial system.
The latest consumer prices report shows cost of living is still rising far above the Fed’s target. But don’t expect monetary policymakers to aggressively hike rates.