Recent events in the financial world have caused the public to worry over the stability of banking institutions. It has triggered worry and flashbacks to the 2008 banking crisis. Are we heading towards another devastating recession? Let’s take a look at what experts are saying.
Cause for Concern
Two large banking institutions failed earlier this month causing major concerns for both the financial system and the American public. An article written for aljazeera.com states, “US regulators closed SVB on March 10 after it experienced a bank run – a rush by depositors to withdraw their funds all at once. Specialised in lending to technology startups and the venture capitalists who finance them, the California-based institution had invested much of its money in US government bonds, whose value fell as interest rates rose. A second bank, New York-based Signature, also failed.”
Two Different Situations
While things look shaky in the banking world right now, experts insist that the 2008 banking crisis and what’s going on today are two totally different situations. Back then, banks went under because they were holding on to a large number of subprime assets. Thanks to reforms put into place two years after the last banking crisis, the financial system is in a much better place. For this reason, current struggles don’t seem quite as dire as before. Washington also helped reduce risks to the system by creating a lending initiative, dubbed the Bank Term Funding Program (BTFP), to provide additional liquidity to financial institutions and “help banks meet the needs of all of their depositors”.
Another difference in this current banking situation involved the government seizing the two failed banks and the President guaranteeing the money of all their respective depositors, even those who were uninsured.
The government stepped in to cushion the blow to both the financial system and the public. This has been met with less than favorable responses. The above mentioned article goes on to say, “Yellen and other US officials have sought to defend the government’s interventions amid concerns and public frustration around its decision to effectively bail out financial institutions that critics say were mismanaged.”
Despite what it appears, the government insists that they didn’t bail out these two banks at all. They claim what they did doesn’t constitute a bailout.
Meanwhile, the effects of these two failed banks have been felt across the world. It has caused a bit of panic. However, other banking giants have rallied together and pledged money in order to shore up struggling lenders and avoid further financial turmoil. Washington welcomed this move.
In a world where finances are already a struggle with rising inflation, the last thing we need to be concerned about is a banking crisis. As far as the U.S. Treasury Secretary is concerned, we don’t have to worry about a repeat of the 2008 economic issues at this time.