The world economy is having a bad day as reports of a crisis that might rock the American banking system are coming to light. Four significant economic events that rocked the world in the previous century have occurred, and it appears that history is repeating itself once more. Already, two American banks have failed, and the crisis is growing with significant worldwide repercussions. The United States of America is this time’s common denominator.
A third US bank was revealed to be on the verge of failure yesterday. The First Republic Bank had received a junk rating from credit rating agencies, and it appeared that there was no chance. Nevertheless, today’s stunning intervention by America’s largest bank saw 11 institutions infuse an incredible $30 billion to save the First Republic Bank. It’s a huge infusion of cash that the bank really needed to survive. Why did 11 banks hurry to preserve it is the question. To preserve oneself is the straightforward response. This action was taken to calm the situation and stop another bank from failing, which would have had a terrible effect on investor confidence.
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Yet the crisis is far from finished, and this approach is unsustainable. The world’s markets are still in a state of chaos, and Europe is blaming US for this catastrophe. Regulators in the European Union are blunt in their criticism of US officials, labeling them incompetent. Leading Eurozone officials, including former regulators and experts in public policy, are all upset with how the Silicon Valley Bank crisis was handled. They contend that the US response was disastrous and that the decision to cover all bank deposits jeopardizes the international order. It’s a damning indictment, so it’s understandable why Europe is in a hysterics.
It seems sense that investors are anxious. They don’t know when the crisis will reach its lowest point, and things could change at any time. According to some experts, the US government’s approach is not making things better. Every time the federal government intervenes in the economy, there is a cascading impact that entirely invalidates any perception or risk assessment. How far is the US administration willing to go? is a valid question. Will it be able to save all failing banks? How many banks are still having issues? Although we don’t have a precise figure, several banks might be cash-strapped.
These banks lent the US Federal Reserve roughly $300 billion last week. The two banks that failed last week, Silicon Valley Bank and the Signature Bank, received nearly half of that money. The Federal Reserve has now given them $143 billion, but what about the remaining funds? Which other banks borrowed money from the US Fed? We don’t know yet, and the US Fed did not identify the banks, presumably because they did not want to feed into the hysteria.
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The government is attempting to control the narrative in the meantime. Team Biden is remaining true to its position and pushing for the continued strength of American banks. Recently, the US Treasury Secretary told Congress that the banking system is stable and that Americans may have faith that their deposits will be available when they are needed. The actions taken this week show how firmly committed they are to maintaining the stability of the financial system and the security of depositors’ deposits.
But are these guarantees sufficient? Another American bank was saved from failure today. Money isn’t Washington’s issue; rather, it’s the confidence crisis that’s harming companies all across the world. America’s banking system is in danger of failing, and the future is uncertain. The public, regulators, and investors are all impatiently awaiting the next development. There is just one thing that is certain: this crisis is far from over, and it will have a significant impact on the world economy.
