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Explained: After 4 US banks collapse within 11 days, know reason behind financial turmoil in US banking industry

The banking sector is undergoing significant turmoil worldwide, with five banks in dire straits within 11 days.

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US Banking Crisis: In recent weeks, the banking sector has experienced significant upheaval, with several banks on the verge of collapse. Four banks have already collapsed, and the fifth is in an even worse financial condition. In this explainer, we will discuss the reasons behind the banking crisis and how regulators are reacting to it.

The first bank to collapse was Silvergate Capital Corp, the US's first bank to go down due to the downturn in the crypto industry. The Federal Deposit Insurance Corporation tried to save it, but the bank suffered heavy losses due to department fraud and the collapse of the crypto giant. Depositors are now trying to withdraw money by selling their property, and the bank's operations were closed on March 8.

Silicon Valley Bank's investors and depositors were already on edge after Silvergate's collapse when the company announced plans to sell $2.25 billion of shares on March 8. As soon as the shares were sold, investors started withdrawing their money, and the bank's shares fell by about 70 per cent. FDI has taken over the bank and has invited bids for it.

Signature Bank faced a crisis on March 12 when investors started withdrawing large amounts of money anticipating a crisis in the banking sector, causing the bank to run out of money. Flagstar Bank and New York Community Bancorp acquired its deposits and some loans, with Flagstar agreeing to buy the property for $38 billion.

Credit Suisse Group AG fell on Sunday after Swiss authorities struck a deal with UBS Group AG for a $3.2 billion acquisition aimed at averting a wider financial crisis. Following the collapse of the 166-year-old Swiss institution, Chief Executive Officer Ulrich Körner attempted a massive outreach to customers to save the bank, which saw huge deposits pulled out over the past year.

First Republic Bank also fell prey to the withdrawal of large numbers of customers' money. The bank's cash flow has been estimated at $89 billion, and $30 billion in cash was given to save it, but its shares are still falling.

Regulators have been taking steps to prevent further damage to the banking sector. The US government has stated that people's deposits will not be affected by the crisis, and the FDI has been appointed as the receiver for several of the collapsed banks. However, many experts believe that the crisis could spread further.

Read more: Bank crisis: What happens to the money of customers if a bank collapses?

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