Does the fate of the Signature Bank signify a looming economic crisis for the American economy?
Is America Staring at An Economic Meltdown?
by Morris Muthama | Staff Writer | Eternal Affairs Media
The performance of the banking sector is a crucial indicator of a country’s economic trajectory since banks perform a central role in monetary policy transmission. The banking sector is a pivotal player in the country’s financial system since it facilitates the mobility of immovable assets and avails credit facilities. Banks’ operations consist of potent tools the government uses to implement fiscal and monetary policy. With that in mind, let us consider recent events concerning the American banking system. Was the Silicon Valley Bank collapse a premonition of doom for the American financial system, or was it a long overdue crisis? Does the fate of the Signature Bank signify a looming economic crisis for the American economy? Or rather, is the global economic system on the verge of collapse, considering that almost every major economy is performing dismally? We shall dissect these issues to gain perspective on the implications of the unfortunate developments rocking the American banking system as we analyze the possible turn of events for global economies.
Politicians are on a damage control mission, but the prevailing realities contradict their affirmations. For instance, the U.K. Prime Minister assured his people that the economic situation had been stabilized, and several central banks made the same utterances. On the contrary, banking shares epitomize a looming economic uncertainty due to the perpetual fluctuations of their value. The Swiss bank possesses the ultimate reputation of being a cornerstone of financial stability, but the current events surrounding its operations indicate otherwise. For instance, UBS’s takeover of Credit Suisse denotes an ailing global economy, considering that the entity has investment banking operations scattered worldwide. The turn of events in the Credit Suisse bank indicates a complex financial challenge that has plagued the conventionally stable Swiss banking sector.
In the U.S., the Silicon Valley Bank and Signature Bank have already kissed obscurity, a significant blow to the tech sector, considering that the two financial institutions are pivotal pillars for tech establishments. The collapse of these two banks is a significant economic challenge for America since the magnitude of their implications is only second to the events that ensued in the 2008 financial crisis. Despite the magnitude of the economic crisis that the collapse of the Silicon Valley Bank and the Signature Bank signifies for America, the instability of the Swiss banking system is more significant. The most horrendous issue is that central banks have resorted to applying the same interventions they used during the 2008 financial crisis, which may mean the economy is taking the wrong trajectory. Trying to foster confidence and creating the impression that the system is stable through protecting cash flow does not solve the overarching economic missteps ailing the economy and therefore does not provide potent solutions to mitigate the challenges at hand.
There are lessons that banks learnt from the 2008 economic crisis, after government was involved in bailouts which orchestrated a global economic recession. The necessity to tighten risk regulations, hold more capital, and combat illicit financial engagements like money laundering are some of the major dimensions of fostering protection to the ailing banking systems then. However, the banking sector is a complicated front, and calls for keen analysis of the underpinning economic factors that shape the experiences that the world’s financial system encounters. There are numerous fragilities that expose the banking sector to financial crises, and these are never identifiable until pressure is exerted on the system.
The financial crisis engulfing to major American banks has cost the Federal Reserve Bank a whopping $ 140 billion. In the recent past, banks have borrowed from the Fed to the tune of $153 billion, smashing the $112 billion record set during the 2008 financial crisis which is indicative of a looming financial meltdown. Those intending to get loans for their development purposes have lower prospects of getting the credit facilities they desire, since banks will investigate the borrowers’ creditworthiness before they can lend them money. The consistently soaring market tensions point to the possibility of an economic recession and contribute to the onset of a significant downside economic risk. The Chinese economy is also performing dismally as evidenced by the recent regulatory framework instituted to cap the amount that lenders are required to have in the reserve to maintain a steady cash flow. Is our money safe? Is there anything to worry about, considering the trends in the banking sector? Let us know your views in the comments.