Prompt action by regulators and the banking industry have eased the fears of a 2008 redux
Ibrahim Athif Shakoor
Trouble brewing in the US banking sector first manifested itself openly on the 10th of March when Silicon Valley Bank, a major lender to the tech industry, fell to a classic bank run by depositors. Within a week 2 more US banks; Signature Bank of New York and First Republic Bank needed to be propped up.
Fears about something rotten in the banking system spread rapidly outside the shores of US and on the 19th of March, the 167 year old Credit Suisse Bank, which had been in facing headwinds for 2 years, lost 30% market value in a matter of days.
While self-appointed gurus and media pundits attempted to fan the flames of meltdown of global bank failure a la’ 2008, regulators and indeed the banking industry itself, swiftly went to work and took swift action to calm and offer assurance to the depositors, and in the global economy.
US regulators took the lead with the Federal Deposit Insurance Corporation (FDIC) taking quick and effective measures to stem the bleed by taking control of Silicon Valley Bank on March 10th and the Signature Bank on the 12th.
Federal Reserve data released late March showed that bank customers collectively pulled $98.4 billion from accounts for the week ended March 15, as Silicon Valley Bank and Signature Bank failed.
By the 16th of March US regulators working with 11 of the biggest of the US banks, including JPMorgan Chase, Bank of America, Wells Fargo and Citigroup, organized an infusion of cash, thereby shoring up California’s First Republic Bank and preventing its fall.
On the 19th of March Sunday Switzerland’s biggest bank; UBS, with help from Swiss regulators has bought the troubled Credit Suisse thereby preventing further market turmoil before markets open on Monday.
Within a period of 10 days, regulators in both US and Europe had worked in tandem with private banks to prevent a repeat of the 2008 banking system disaster and kept the global economy alive, albeit a tad bruised.
It is, indeed the duty of regulators of the banking industry, in US and elsewhere, to firstly ensure that banks are healthy and safe. In the event of troubled winds they are required by law to intervene and take immediate steps to stop the bleeding. That is the law and it is expected of the regulators. Regulators of US and indeed the regulators of many other countries, especially the Swiss, played their appointed role in time to stem the tide.
However, for students of the economy, it is the bold and urgent initiative of private banks, that is remarkably different and indeed astonishingly refreshing.
Many of the leading banks in the US joined together to infuse $ 30 billion into First Republic to prevent the third domino from falling thereby most probably preventing a larger global banking fiasco. Switzerland’s largest bank UBS, with assistance from Swiss authorities, bought its troubled sibling Credit Suisse for 3 billion Swiss franks concluding the deal during a weekend.
There is no doubt that what motivated the private banks were not high morals and a desire to do good and spread peace and happiness on a global scale. Instead, their actions were hastened by corporate and financial interest.
For the scars of 2008 are still raw, the hurt and the pain all too real. The private sector acted to apply balm to the bruise before the wound could infect the body.