In the world economy, the collapse of three mid-size US banks has become a burning topic of this year. This year is already experiencing major economic issues. Inflation rate has become huge that is leading the world economy into serious problem. Developed countries are into trouble, therein the developing and underdeveloped countries are suffering highly. The issue is that regulators have closed down three mid-size US banks and sold those since the beginning of March. Those banks are Silicon Valley Bank, Signature Bank and First Republic. These failures are the major to hit the US since the financial crisis of 2008. Many economists urged that these fallouts in the banking crisis are likely to push the US economy towards mild recession. If such a thing happens, this will be catastrophic for the world economy.
Bank collapses in the USA could possibly have a substantial ripple effect on the wider economy and the overall financial system. The precise impact would depend on various factors. As the banks collapsed in the USA are mid-sized, the impacts will be huge on the economy. Some of the possible impact of these bank collapses on the economy could be like these.
There will be a decrease in lending and investment. As a mid-sized bank collapses, the public will be concerned about their deposits. They will consider it unsafe to keep their money in banks. Although there is nothing much to worry for the depositors, they will always have a fear of losing their money. This will simultaneously decrease the investments, and banks will be unable to use customers’ money. This could also lead to a slowdown in economic growths.
Consumer confidence and spending will be decreased after the collapse of banks as people will be worried about the stability of the financial systems. This could lead to a decrease in the consumer spending. If consumer spending is lowered, there will be a negative impact on the business and the overall economy.
There will be a major impact on employment. As business investment might drop, many people will lose their jobs and employment opportunities will decrease. Companies will be having tough times to access the capitals they need to grow.
Then there will be a liquidity crisis, which could be a serious issue. There will be a shortage of cash and other liquid assets. This could lead to a potential instability within the market and further economic impacts as well.
The government will have to intervene in the event of a bank collapse. The central bank of the USA is already intervening in the process. As there is a collapse of banks, it is mandatory to keep the flow going by the central bank. But this will not be easier for every central bank as the central banks of different countries do not have sufficient funding to support the collapsed banks. Thus, it will become tough for them to support. There is a possibility that the customers’ money will be lost and this could be disastrous for the general public.
Since the collapse of the banks in USA, banks are advised and ordered to keep more capital and risk aversion measures need to be used. This will help the impacts of these current issues to be diminished. Still, the banking world is very complicated. This can be tough to identify where new delicacies might lie. The system has to be monitored with high notes to avoid any further issues. Moreover, there is nervousness around the health of the banks as people have already started worrying about the deposits they have with the banks, and they have the power to switch the amount with a single mouse click but this might become a nightmare for the banks. This is the time when regulators will toughen up the rules and regulations of maintaining a bank to gain the trust and confidence of the depositors back again, and that could put a chill on the global economy.