Understanding the new American banking crisis

After hiking the benchmark interest rate, US Federal Reserve chairman Jerome Powell signalled that they were on the verge of pausing further rate hikes to limit its impact on the ongoing financial turmoil in the banking industry. “It could easily have a significant macroeconomic effect and we would factor that into our policies,” he said in a Reuters article on March 22. How prevalent are banking failures in the United States? How serious is the current turmoil? What are its implications? Here are five charts that explain this in detail.

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Bank failures have become a rather common phenomenon in America

Latest data from the Federal Deposit Insurance Corporation (FDIC) shows that 563 banks have collapsed in the US since 2000, meaning that an average of 25 US banks failed each year. The largest number of bank failures took place during the 2008 global financial crisis and its aftermath (389 banks between 2008 and 2011). Bank failures vanished in the pandemic years of 2021 and 2022. In such a scenario, the collapse of the Silicon Valley Bank (SVB) on March 10 and the Signature Bank on March 13 set off shock waves across the banking sector. “Such a long time without news of a bank collapse may have lulled depositors into a false sense of security. Without a reminder that banks can and do fail, depositors got caught up in a euphoria that touched a host of asset classes during the period, from tech stocks to digital currencies to long-dated bonds. Bank customers channelled billions of dollars into uninsured deposits,” said Marc Rubinstein, a former hedge fund manager, in a Bloomberg opinion piece on March 13.