Bank failures have been uncommon in recent years. However, in light of First Republic Bank's bankruptcy, it's vital to examine where these bank failures fell historically. So, what banks are in trouble?
What Banks Are In Trouble?
Between the fall of Almena State Bank on October 23, 2020, and the failure of Silicon Valley Bank on March 10, 2023, there were approximately over 800 days.
The failures of Silicon Valley Bank and Signature Bank were thus the first of President Biden's administration. When President Trump was in office, there were 16 of them.
Even those 16 failures within President Trump's administration pale in comparison to years like 2012-2014. And the Great Recession in 2009 and 2010 clearly created unique circumstances.
Due to the Federal Reserve's aggressive interest rate increases to control inflation, the value of bank assets like government bonds and mortgage-backed securities has decreased, which is why regional banks are collapsing.
Most bonds have a fixed interest rate that becomes more appealing when interest rates decline, increasing demand and bond price. However, if interest rates increase, investors will no longer favor the lower fixed interest rate that a bond pays, which will decrease the bond's price .
During the pandemic, when deposits were plentiful but loan demand and rates were low, several banks raised their holdings of bonds. These unrealized losses will remain on paper for many banks. The Federal Reserve Bank of St. Louis warns that some people might really lose money if they have to sell securities for liquidity or for other reasons.
Is Crypto Causing Banks To Fail?
Cryptocurrency is not always to blame for bank failures, and recent ones are no exception.
The bitcoin sector isn't one of the numerous factors that led to the disastrous failure of Silvergate Bank, which was followed by Silicon Valley Bank and Signature Bank and ranks as the second and third largest banking failures in American history. On the contrary, a Mix of corporate poor management and inconsistent regulatory responses were the real offenders behind the financial crisis.
Along with blaming the crypto industry, it became increasingly clear that risk management was suspect in at least some situations as these banks kept failing. The recent bull market saw Silicon Valley Bank place a sizable wager on low-interest assets that quickly lost value, Silvergate , by its very nature, had become heavily exposed to the crypto sector, and Signature Bank had already been the subject of numerous investigations; entering the crypto market only heightened this scrutiny.
Summary
Moving quickly and breaking things may be a fantastic ethos for technology companies, but financial actors would benefit from exercising more caution. And, this is the answer for “what banks are in trouble?”
