As the banking crisis in both Europe and the USA continues, investors are becoming increasingly concerned about the stability of the global economy. Despite the Federal Reserve’s assurances that the US banking system is “sound and resilient,” major regional lender PacWest’s collapse has caused many to doubt this claim.
Furthermore, the recent collapse of First Republic Bank has exceeded the 2008 collapse in terms of assets, and economists are warning that this may only be the tip of the iceberg. With the Federal Reserve’s aggressive interest rate hikes over the past year, hundreds of banks are predicted to go under in the next 12 months as the economy suffers.
The economist warns that the early collapses are only the beginning, with hundreds more expected to follow in the coming years. In 2008, 25 US banks collapsed, followed by a staggering 440 in the next four years. This is a significant increase compared to the two banks that collapsed per year pre-crisis, indicating that the worst is yet to come.
It typically takes 12-18 months for interest rate hikes to take effect on the economy, and with only six months having passed since the hikes began, the real storm may not hit for another year. These are the first warning signs of a coming hurricane, and investors should brace themselves for more collapses in the banking industry.
The banking crisis in 2023 raised concerns globally as a result of the collapse of a major American investment bank, SVB. The collapse of regional banks in the US, such as Signature Bank and First Republic, has caused concern about the stability of the sector, leading to significant losses for investors. The Federal Reserve and other central banks announced measures to calm market turmoil, including providing USD liquidity. Meanwhile, Chinese banks were largely unaffected, with India and several other countries putting any further interest rate hikes on hold. However, the International Monetary Fund downgraded its forecast for global GDP growth in 2023 due to the unsettled nature of the financial sector. The recent banking crisis has sparked panic on Wall Street, with investors becoming increasingly concerned about the stability of the global economy.
As the crisis continues, there are fears that it could spread to the UK, although at present, the risk is limited. The Bank of England is expected to raise interest rates, with one additional increase anticipated by the end of the year. Economists are warning that the recent collapses of banks may only be the beginning, with hundreds more predicted to follow in the coming years. The early collapses are just the first warning signs of an impending financial storm.
Investors are becoming increasingly concerned that confidence in financial institutions is eroding, and the collapse of each bank could lead to the next weakest bank starting to wobble. Consolidation is risky at this moment, with the Biden administration aiming to bolster manufacturing and domestic supply chains. Gutting regional banks would have massive implications for the US economy, as smaller operations offer businesses sector-specific expertise that they cannot get from larger Wall Street banks.
In conclusion, the banking crisis has highlighted the need for government intervention, but bipartisan support in Congress is unlikely. The lifting of the limit on deposit insurance could be a good place to start, but more bank failures and Wall Street panic can be expected in the weeks and months ahead. The crisis has emphasized the need for a global perspective, with alternative currencies like Bitcoin and Gold becoming more attractive than traditional fiat systems.
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