NUNZIUM

At its core, a financial crisis is a sudden and severe disruption in the normal functioning of the financial system. It can be triggered by various factors, from excessive borrowing and risky investments to market bubbles and regulatory failures. Whatever the cause, the impact can be devastating, with millions of people losing their jobs, homes, and savings. The most recent crisis is often called the 2008 global financial crisis. A severe economic downturn started in the United States and quickly spread to other countries. The crisis was triggered by a combination of factors, including the housing bubble, subprime mortgage lending, and the widespread use of complex financial instruments. When the bubble burst and many mortgages began to default, it led to a credit crunch, a severe contraction in lending, and a deep recession. The crisis had far-reaching consequences, including widespread job losses, foreclosures, and a long-lasting impact on the global economy.

The global banking system has weathered many storms over the years, but the next crisis may be just around the corner. As economies worldwide continue to struggle with the ongoing effects of the COVID-19 pandemic, the banking system is hit particularly hard by rising interest rates. Last week, on Friday, March 10, a well-known institution - the Silicon Valley Bank, SVB - collapsed within a few hours. SVB was one of America’s 20 largest commercial banks, with $209 billion in total assets at the end of last year. It is now under the control of the US Federal Deposit Insurance Corporation after it could not pay back customers who withdrew their deposits. The collapse of SVB had a knock-on effect, with the four largest US banks losing more than $50 billion in market value. Bank shares in Asia and Europe also fell sharply on Friday. In an extraordinary action to restore confidence in America’s banking system, the Biden administration on Sunday guaranteed that customers of the failed Silicon Valley Bank will have access to all their money starting Monday. In a related action, the government shut down Signature Bank. Recently, this regional bank has been teetering on the brink of collapse. Signature’s customers will receive a similar deal, ensuring that even uninsured deposits will be returned to them Monday.

Although the prompt action of the US government has reinsured investors to some extent, in recent days, the stock market value of most banks in the US and EU has seen a steep downturn. A bank that is particularly under pressure is Credit Suisse. In 2021, Credit Suisse faced significant financial losses due to its exposure to the collapse of Archegos Capital Management and the Greensill Capital scandal, resulting in a sharp drop in its stock market value. The recent events added further pressure, and the value of the shares dropped by nearly 40% in the last month. Similarly, HSBC has seen a drop of more than 10%, Barclays and UBS about 17%, and Goldman Sachs 18% in the last month. Hopefully, this will not be the beginning of a new global crisis for which new unknown dynamics may be unveiled.