RANJEETHMAL GANDHI EDUCATIONAL TRUST ®

R G INSTITUTE OF COMMERCE AND MANAGEMENT

B.COM, BBA, BCA

SYMPOSIUM 2K23
“NEXT GEN BUSINESS”

USA BANKING CRISIS 2023 BY FEDERAL RESERVE SYSTEM

TEAM : APNA
NAME OF THE PARTICIPANTS : SPOORTHI S
JYOTHI B S
HUB : FINANCE
INTRODUCTION

• A banking crisis occurs when many banks in a country are in serious solvency or
liquidity problems at the same time either because there are all hit by the same outside
shock or because failure in one bank or a group of banks spreads to other banks in the
system.
• They tend to lead affected economies into deep recessions and sharp current account
reversals.

• Among the many causes of banking crises have been unsustainable macroeconomic
policies excessive credit booms, large capital inflows, and balance sheet fragilities,
combined with policy paralysis due to a variety of political and economic constraints.
• Over the course of five days in March 2023, three small- to mid-size U.S.
banks failed, triggering a sharp decline in global bank stock prices and swift
response by regulators to prevent potential global contagion. 
• Silvergate Bank and Signature Bank, both with significant exposure to 
cryptocurrency, failed in the midst of turbulence in that market.
• Silicon Valley Bank (SVB) failed when a bank run was triggered after it sold
its Treasury bond portfolio at a large loss, causing depositor concerns about
the bank's liquidity.
• Three banks failed or were shut down by regulators: The first bank to fail,
cryptocurrency-focused Silvergate Bank, announced it would wind down on March 8,
2023 due to losses suffered in its loan portfolio. 

• Two days later, upon announcement of an attempt to raise capital, a bank run occurred
at Silicon Valley Bank, causing it to collapse and be seized by regulators that day. 

• Signature Bank, a bank that frequently did business with cryptocurrency firms, was
closed by regulators two days later on March 12, with regulators citing systemic risks.

•  The collapses of First Republic Bank, Silicon Valley Bank and Signature Bank were
the second-, third- and fourth-largest bank failures in the history of the United States.
• On Sunday, March 12, 2023, Signature Bank, New York, NY was closed by the
New York State Department of Financial Services.
• To protect depositors, on Monday, March 13, 2023, the FDIC transferred all the
deposits of Silicon Valley Bank to Silicon Valley Bridge Bank.

• U.S. President Joe Biden made a statement about the first three bank failures on
March 13, and asserted that government intervention was not a bailout and that
the banking system was stable.

• On Sunday, March 19, 2023, FDIC entered into a purchase and assumption
agreement.

• On March 26, 2023, the FDIC entered into a purchase and assumption agreement
for all deposits and loans of Silicon Valley Bridge Bank.
• At the beginning of 2022, American banks held $24 trillion in assets, including cash on hand to repay
depositors, securities such as Treasuries or mortgage-backed bonds, and loans. The value of banks'
portfolios fell when interest rates leapt to 4.5 per cent, resulting in $620 billion in unrealised mark-to-
market losses across America's financial institutions.

• Many banks within the United States had invested their reserves in U.S. Treasury securities, which had
been paying low interest rates for several years. As the Federal Reserve began raising interest rates in
2022 in response to the 2021–2023 inflation surge, bond prices declined, decreasing the market value
of  bank capital reserves, causing some banks to incur unrealized losses.
• The initial three bank failures and resulting pressures on other U.S. regional
banks were expected to reduce available financing in the 
commercial real estate market and further slow commercial property
development.
•  The Federal Reserve's discount window liquidity facility saw around $150
billion in borrowing from various banks by March 16, more than 12 times the
$12 billion that the BTFP provided.
•  Since the majority of First Republic's long term assets were in 
municipal bonds, it was unable to make full use of the BTFP as those assets
did not qualify as an eligible collateral.
INTERNATIONAL IMPACT
• By Sunday, 19 March, concerns about the banking sector internationally had increased. That day, Swiss
bank UBS Group AG bought its smaller competitor Credit Suisse in an emergency arrangement brokered
by the Swiss government.

• On 21 March, The Business Times reported that Asian central banks were "unlikely to be greatly
influenced by the banking crisis in the United States and Europe.

• Japan the three main lenders, Mitsubishi UFJ Financial Group, Sumitomo Mitsui Financial Group and 
Mizuho Financial Group, lost share value between 10% and 12% due to the market turmoil and their
exposure to the bond market.

• While China's recovery from the pandemic remains fragile, inflation there is muted, and the 
People's Bank of China had adjusted interest rates at a slower pace.

• On 11 April the International Monetary Fund downgraded its forecast for GDP growth globally in 2023 from
2.9% to 2.8%an Western central banks.
CONCLUSION
•In the era of social media and digital banking, rumours (whether true or false) can cause
billions of dollars to be withdrawn from a bank of any size with a few mouse clicks or
smartphone swipes. Digital bank runs are terrifyingly unpredictable and difficult to manage.
•To conclude, the macro environment for vulnerable small and regional banks has considerably
deteriorated in recent months, making it unclear when and how this crisis will end.
THANK YOU