BANKS ARE COLLAPSING! WHAT’S THE REASON BEHIND IT?
The failure of two major US banking institutions, Silicon Valley Bank and Signature Bank, in three days has caused widespread panic and questions about the safety of the banking system. The collapse was due to a "bank run," which is when many depositors withdraw their funds from a bank all at once. The US Federal Reserve is trying to make sure banks are safe by raising interest rates to stop inflation and providing direct assistance to the banking system.
The high interest rates have caused the value of debt to drop, especially for debt with a longer term. This has caused banks to have to sell their securities at a loss and try to get more money. Banks have also borrowed a record amount of money from the US Federal Reserve and other lenders.
To protect account holders, the US Federal Reserve is backing all accounts at Silicon Valley Bank and Signature Bank, no matter the size. Customers in the European Union will get their savings of up to €100,000 back if their bank fails. In the U.K., investors can get back up to £85,000 if their bank fails.
However, these measures have also made it more difficult to get a loan. Banks will be paying more attention to creditworthiness and the interest rates on loans could be higher. The US Federal Reserve believes that this could be a major source of economic risk and Goldman Sachs believes that the US has a 35% chance of entering a recession next year due to the stress in the banking sector.
The collapse of two major US banks has caused concern and confusion among many people, but there are steps being taken to protect customers and make sure that banks are safe. The US Federal Reserve is providing assistance and backing accounts, and customers in Europe and the U.K. are protected up to a certain amount. It is important to stay informed and take care of your money in order to avoid any losses.
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