US banking system is on the fire: watch the next to happen
The fallout from the recent banking crisis is likely to push the US economy into a mild recession later this year. After First Republic Bank became another victim of the banking crisis a couple of months after Jim Cramer endorsed it, several other large banks have been suffering major losses.
The stock of Los Angeles-based bank, PacWest Bancorp, whose share price has slumped after it said it has entered talks with potential partners and investors about strategic options. With this it has declined with 55.63% in the last five days, while Metropolitan Bank Holding Corp has lost 26.84%, Comerica Incorporated 21.11%, and Western Alliance Bank corporation has erased 37.14%, as per the latest Google Finance data. The failures are the biggest to hit the US since the 2008 financial crisis.
First Republic bank( FRC), failure means unfortunately that the other 'so called' troubled regional banks should probably continue to sleep with one eye open. Expert says, if a 'confidence crisis' can happen to First Republic, it can happen to any bank in the country. Investors are speculating on Who’s next?
The market insiders says, FRC, PacWest, and Western Alliance as the next dominos to fall after the infamous developments around Silvergate Bank, Silicon Valley Bank (SVB), Signature Bank, and Credit Suisse. At the same time, In Europe, troubled Swiss giant Credit Suisse, a major global player, is being taken over by rival UBS in a forced rescue deal.
The risk of a US debt default is looming larger, with the government potentially running short of funds to pay its bills as early as 1 June, Treasury Secretary Janet Yellen says. The government's current debt ceiling is set at $31.4 trillion, and a political standoff is preventing it from being raised. A US debt default would be unprecedented and would shake the global economy.
Going forward, the bigger worry is that the bank failures might lead to doubts about relatively healthy banks, creating a financial contagion that could impact the wider economy. Averting that scenario was the reason the U.S.
put tighter restrictions on major banks following the financial crisis 15 years ago.
It is difficult to ignore the sense of unease in banking right now, though there’s no need for concern if your money is in a bank insured by the Federal Deposit Insurance Corp. and you have less than $250,000 there, which covers most accounts.
Finally, the turmoil is part of the fallout after central banks, including in the US and UK, raised interest rates sharply last year to try to dampen down rising prices.
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