Impacts of United States Bank Failures

Gabriella Alvarez, Copy Editor

On March 10, the biggest banking collapse in the U.S. since the Washington Mutual occurred. Two days earlier, on March 8, Silicon Valley Bank suffered a $1.8 billion tax loss over a multi-billion bond portfolio agreement. This, along with a failed sale of common equity shares, led to the collapse of the bank and a total loss of $80 billion worth of bank shares. 

Following this on March 12, Signature Bank in New York shut down as customers withdrew their money. The bank run occurred as both banks had a primarily large cryptocurrency clientele. When customers began withdrawing money from Signature Bank, New York regulators closed the bank in an attempt to prevent further economic disaster. The Federal Deposit Insurance Corporation proposed efforts to restore funds — insured or not — for both banks’ customers.

“The Federal Reserve raised the federal funds rate by only 25 basis points this month in part due to the events above. The fact that our money is safe up to 250,000 dollars per account by the FDIC is also a leading factor of why we can be confident that our banking system is safe and sound,” Miami Palmetto Senior High Honors Economics and United States History teacher Armando Gonzalez said.

Although efforts were being made, the U.S. continued to face difficulties in the banking system throughout March. The U.S. Department of Justice and the Securities and Exchange Commission launched an investigation into the Silicon Valley bank collapse, yet no conclusion has been made. Despite other bank declines such as First Republic Bank’s stock decrease of 30%, reassurances regarding the stability of the U.S. banking system were still put forward to Congress around mid-March.

At the same time as Treasury Secretary Janet Yellen’s statement to Congress, 11 large U.S. banks including Bank of America and Wells Fargo contributed to saving First Republic Bank from collapsing. Each bank deposited $30 billion in the bank, keeping it afloat. 

However, the next day, March 17, Silicon Valley Bank officially filed for bankruptcy. This announcement prompted President Joe Biden to speak out about the collapses, stating that Congress must impose more penalties for the bank executives who contributed to bank failures. 

“The government has the challenge to find the correct balance between putting in place regulations to prevent the collapse of financial institutions but being careful that these regulations don’t jeopardize the overall business of the financial institutions in general,” Sr. Director of Global Clients for a large payments company Juan Cogorno said.

While those in the system currently work towards repairing the failures, many raise concerns about the impact of increasingly frequent bank collapses. The process of repaying creditors to the fullest extent does not always prove successful, leaving many customers bound to suffer economic loss.

Several problems may occur to the average person due to the banking collapses. In wake of the collapses, increased difficulty may arise when receiving a loan, especially if banks implement stricter regulations. If multiple banks lessen their lending along with other factors, such as an employment rate decrease, the economy faces the possibility of falling into a recession.