The situation involving banks in the United States has been joined by other international banks that are experiencing failure as well.
The collapse of the west coast Silicon Valley Bank in California last week was quickly joined by east coast Signature Bank in New York.
Both banks centered on business dealings and the tech industry, including starts ups.
The SVB lent funds to startups in China, as certain tech industries there were unable to secure financing in their home country. Both banks dealt heavily with cryptocurrency.
Concern that runs on banks would quickly escalate and severely impact the banking industry, measures were taken by the government to calm the public.
Banks are generally insured up to $250,000 per client, but the U.S. government stepped in and announced that all losses would be covered.
The Treasury Department and the Federal Reserve announced that “All SVB clients would be protected and be able to access their money” AP reported.
New York Community Bancorp will now be taking over the Signature Bank, the FDIC announced Sunday, CBS reports. Signature Bank’s collapse is considered the third-largest bank failure in U.S. history.
Meanwhile, the U.S. crisis is joined by banking news internationally.
Credit Suisse in Switzerland has collapsed. Swiss banking has always enjoyed the reputation of being the most stable, but now UBS will take over Credit Suisse for nearly $3.25 billion.
UBS states that it is “a global firm providing financial services in over 50 countries”. UBS was Union Bank of Switzerland, and when it merged with the Swiss Bank Corporation it became known simply as UBS.
Banks in Europe and Asia are watching the situation unfold with shock waves rippling out across the globe. Last night it was reported that the top central banks in the Western world have joined together to provide a means of protection against a collapse in the banking system.
On Friday, the World Economic Forum reported:
“Stock markets subsequently fell around the world, with banking stocks seeing particularly large falls. The turmoil in banking stocks also triggered drops in yields for US Treasuries and Eurozone bonds, and gold prices renewed their recent rally as investors sought safe havens.”
In an unusual Sunday announcement, The Federal Reserve posted this last night:
The Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, the Federal Reserve, and the Swiss National Bank are today announcing a coordinated action to enhance the provision of liquidity via the standing U.S. dollar liquidity swap line arrangements.
To improve the swap lines’ effectiveness in providing U.S. dollar funding, the central banks currently offering U.S. dollar operations have agreed to increase the frequency of 7-day maturity operations from weekly to daily. These daily operations will commence on Monday, March 20, 2023, and will continue at least through the end of April.
The network of swap lines among these central banks is a set of available standing facilities and serve as an important liquidity backstop to ease strains in global funding markets, thereby helping to mitigate the effects of such strains on the supply of credit to households and businesses.
As the world’s largest credit house, Credit Suisse failing had other banks such as Deutsche Bank investigating possibilities of a merger, but the deal with UBS is reported to be going through as of Monday morning.
Investors on Wall street cautiously welcomed the moves to shore up the system and stocks nudged higher, the New York Times reported.
President Biden has stated that Americans should be reassured that all is well, saying “Americans can rest assured that our banking system is safe. Your deposits are safe.” On Friday the president said that the banking crisis had “calmed down” and that the global banking system is safe, as financial stocks have lost billions of dollars in value since last week when the collapse started.
Biden also called on Congress last week to give regulators greater power over the banking sector, including leveraging higher fines for managers, clawing back executives’ compensation, and barring officials from failed banks, Reuters reported. Biden asked Congress to give the FDIC greater authority “including gains from stock sales – from executives at failed banks like SVB and Signature Bank” the White House said on Friday.
The banking crisis now turns political with those intentions by President Biden, and with the inevitable blame on former President Trump by the Democrats. In 2018 a bi-partisan bill deregulating banking and rolling back restrictions that were put in place immediately after the 2008 banking collapse was passed by Congress and signed into law by then-President Trump.
But the freedom to choose investments is not the problem. The banks chose risky investments that ultimately failed, as is always a chance in investing.
The blame is not on the president who signed the law reinstating freedom of choice for banks to invest, but rather the executives at the failed banks who chose the risky investments.