The abrupt closure of three banks in the United States is sending shockwaves in various sectors of the economy and raising concerns about the U.S. banking system. Recent bank failures started with Silvergate Bank – a large player in the crypto industry on March 9, then Silicon Valley Bank on March 10 and later, Signature bank on March 12, becoming the third largest bank failure in U.S. history.

The Wall Street Journal reported on March 14 that the Justice Department and the Securities and Exchange Commission have begun their investigation of the collapse of Silicon Valley Bank. At the same time, U.S. inflation rates slowed to a 6% annual rate amidst the looming of a potential banking crisis.

On March 13, U.S. President Joe Biden assured the depositors of the failing banks that their money was in safe hands. Insured by the Deposit Insurance Fund, Biden said, “No losses will be borne by the taxpayers. I’m going to repeat that — no losses will be borne by the taxpayers. Instead, the money will come from the fees that banks pay into the Deposit Insurance Fund.”

However, when it comes to the investors, Biden announced that the failed banks’ securities aren’t going to provide them with the same guarantee. To this, he added, “They knowingly took a risk and when the risk didn’t pay off, the investors lost their money. That’s how capitalism works.”

Despite assurances from the U.S. president, the bank collapse led to global stocks plummeting on March 14. Due to fears that other banks could be caught out in the same way, regulators in the UK, the U.S., and Asia are attempting to contain the backlash from these banks’ closures. .

According to Reuters, major banks in the U.S. lost roughly $90 billion in stock market value on March 13, as investors feared additional failures and so pulled funds proactively. . The collapsed New York-based Signature Bank came under the scrutiny of the rating agency Moody’s, as it downgraded its debt ratings to ‘C’ and will also be withdrawing future ratings. According to a petition filed by Y Combinator to the U.S. government on March 12, around 10,000 small businesses that had deposits in SVB will fail to make payroll in the next 30 days. The collapse has impacted close to 100,000 jobs.

However, extraordinary steps to stop a potential banking crisis were taken by U.S. regulators. The joint Treasury Department, Federal Reserve and FDIC announcement on March 12 ensured that, “the U.S. banking system continues to perform its vital roles of protecting deposits and providing access to credit for households and businesses in a manner that promotes strong and sustainable economic growth.”

In a separate announcement, the Federal Reserve introduced“’an expansive emergency lending program” intended to lend freely to the banking system to win the confidence of customers and allow them to access their accounts whenever needed. The Treasury has set aside $25 billion to offset any losses incurred under the Federal Reserve’s emergency lending facility.

The contagion in the financial market has brought to light the fragility of the U.S. banking system and has raised questions about other mid-cap lenders’ balance sheets. Reuters released a report on March 13 about five regional banks in the U.S. with the biggest chunk of uninsured deposits.

First Republic Bank has uninsured deposits of over $119.5 billion which is 68% of its total deposits. Comerica Bank has uninsured deposits of $45.5 billion which is 62% of its total deposits. Western Alliance Bank also has similar statistics with $31.1 billion of uninsured deposits which are 58% of its total deposits. Zion Bank and Synovus Bank have uninsured deposits of over $37.6 billion and $25.1 billion respectively.

In a bid to restore markets’ confidence, Silicon Valley Bank’s newly appointed CEO Tim Mayopoulos said on March 13 that they are open to conducting business as usual. According to the BBC, there are speculations that the Federal Reserve has gone ahead to raise interest rates nationally. They agreed to lift the bank’s key interest rate by 0.5 percentage points. Federal Reserve Chairman Jerome Powell said on March 15 that the bank wanted to slow down to see how the economy is responding to the cumulative impact of the hikes.