Banking crisis not over

The current banking crisis is ongoing and will have repercussions for years to come after the failure of Silicon Valley Bank and Credit Suisse's rescue by UBS last month. It is important to note that banking crises can have significant and long-lasting effects on the economy and society. Experts say, banks are vulnerable to unwinding after central banks "flooded the system with liquidity".

Storm clouds are still threatening the economy as they did a year ago, said Dimon, the chief executive of the largest U.S. lender. And the banking system is under renewed stress after the failure of Silicon Valley Bank and Credit Suisse's rescue by UBS last month.

Banking crises can lead to reduced access to credit, lower consumer confidence, increased unemployment, and decreased economic growth. In addition, they can have a negative impact on the reputation of the financial industry and erode public trust in banks and financial institutions. Banking crises can have significant and long-lasting effects on the economy and society.

It has provoked lots of jitters in the market and will clearly cause some tightening of financial conditions as banks and other lenders become more conservative. Even so, it is unclear whether the disruptions will slow the consumer spending that drives the U.S. economy, Dimon said.

Going forward, we can hope for the best but expect that there might be more to come, partly because some of what we saw was unexpected and the entire concern is that very easy money and high liquidity over a long period creates perverse incentives and perverse structures that become fragile when you reverse everything.

Overall, financial crises are often the result of a complex interplay of economic, regulatory, and behavioural factors. It is important for policymakers, regulators, and market participants to be vigilant about emerging risks and to take steps to promote stability and resilience in the financial system.

There are other risks including the potential for rising inflation, financial market instability, and geopolitical risks such as trade disputes or military conflicts. Additionally, demographic shifts and technological disruptions can have long-term effects on the economy and pose challenges for policymakers and businesses.

It is important for policymakers and businesses to be aware of these risks and to take steps to mitigate their potential impact. By being proactive and prepared, it is possible to mitigate the potential impact of economic risks and promote stability and resilience in the global economy.

Additionally, banking crises can lead to changes in regulatory and policy environments. Governments may implement new regulations to prevent future crises, which can increase the cost of doing business for banks and limit their ability to take on risk. This can have a long-term impact on the profitability and competitiveness of the banking industry.

The risks that led to the current crisis were "hiding in plain sight, Experts say, citing the interest rate exposure and level of uninsured deposits at Silicon Valley Bank.

S Mohini Ratna, Editor, VARINDIA