Failure and Frailties exposed in the banking sector
After the failure of U.S. Silicon Valley Bank and Signature Bank and with the frailties exposed at Credit Suisse, other U.S. regional banks came under extended pressure yesterday.
But these banks of critical concern were swiftly dealt a financial lifeline bringing them back from the brink of failure.
Central Bank Intervention
It was reported that larger banking institutions yesterday pumped some $30 billion in to the smaller regional U.S. banks, such as First Republic Bank.
In recent days Silicon Valley Bank, Signature Bank and Credit Suisse were handed large financial support from their respective central banks to prevent bank failure.
These outbreaks of instability have made it crystal clear that when you unravel some 14 years of low to zero interest rates at such break-neck speed, as central banks jus did – things can go very wrong. The weakest are always exposed to the incumbent risk first, and it is so understandable for investors and depositors to become ultra jittery.
Questions remain though about what we really did learn from the last financial crisis of 2008: whether it’s ok to assume that central banks will always arrive in time, and whether that assumption has made people too relaxed in the face of lurking financial danger. But, central banks reacted extremely quickly to ‘fix’ this problem – at least that lesson was learned. Speed is of the essence in the face of a potential financial crisis.
There is one nagging question however, how and why did it happen again?
Have we been lulled into a false sense of security? Are the banks share prices worth this cash injection?