1. How does the bankruptcy of banks in the United States affect us?
The recent bankruptcy of banks in the United States and Switzerland is of concern throughout the world. The World economy trembles at the risk of collapse.
The fear that a Great Financial Crisis will occur again has returned.
Can we be calm or are there real reasons for concern?
We address it in this content.
2. Bank failure, how does it affect the national and world economy?
A banking crisis is known as a specific phenomenon that can affect the entire World economy.
It is characterized by massive withdrawals of deposits that compromise internal convertibility of liabilities banking.
If this happens, customers cannot get their money back and often the authorities decide to act to guarantee the normal activity of these banks.
Why?
Because globalization means that, with relative ease, that bankruptcy of banks spreads to other entities and, finally, affects the whole system.
The clearest example happened after the bankruptcy of the American bank Lehman Brothers on September 15, 2008, which generated the biggest economic crisis in history and it also affected Spain, where Bankia had to be rescued in May 2012.
Keep in mind that, although the rise of the alternative financing it provides more flexibility and resistance to these problems, the risk is always there: the fall of banking institutions shakes the foundations and the general tranquility.
First, savers are left without access to their money, which slows down activity in the area.
Those affected are not only individuals (who must face real personal dramas), but also companies and institutions that are harmed by an event that can collapse the World economy.
3. Why do banks fail?
In most cases, these crises are due to a progressive loss of banking quality.
In industrialized countries, the origin is usually located in the assets of the balance sheets, as a consequence of a high percentage of loans that are difficult to collect.
La economic instability and fluctuations in real estate prices feed this dangerous probability.
In developing countries, the massive withdrawal of deposits It is one of the triggers for these bankruptcies.
4. Possible consequences of the latest bank failures
First of all, we must refer to the Silicon Valley Bank (SVB), an entity that has generated an important alarm. Although his activity was focused, above all, on financing emerging technology companies, he invested heavily in public debt.
When interest rates rose, those purchased bonds fell in price and many start-ups they withdrew their money at the same time, causing its closure and panic in the World economy.
Credit Suisse, for its part, is a private entity that he was dragging big losses in the last two years.
However, it was mismanagement that caused his downfall.
After the collapse of the SVB, nervousness led its savers to withdraw $416 million.
The rise of the alternative financing It can act as a small brake in these situations. The bankruptcy of banks contagious is a consequence of the systemic nature of this sector.
In fact, financial systems are highly connected; when turbulence occurs, vulnerable entities are exposed. And with them all the World economy.
Fortunately, experts predict that the current situation will better resist these imbalances. Despite the instability and widespread fear, little by little things will return to normal.
Most likely:
1. Some projects are temporarily parked.
2. Central banks lower the increase in rate hikes.
Thus, the tension on the market will be reduced.
As you know, when rates go up, money becomes less accessible, so small and medium-sized companies end up in trouble, something that does not happen if you go for the alternative financing.
Ultimately, the bankruptcy of banks it is a cause for concern that calls for swift action.
On this occasion, however, everything indicates that its consequences will be more temporary than we think.
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