Expert on U.S. Banking Crisis: Federal Reserve battling the problems it made
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The appalling collapse of three American banks in quick succession – namely the Silvergate Bank, Silicon Valley Bank and Signature Bank – within a week has shaken public trust and raised serious concerns about the stability of the U.S. banking system.
While President Joe Biden and U.S. regulators have tried to comfort the American people that their "banking system and money are safe," the fact that American banks are collectively sitting on unrealized losses of more than $600 billion tells another story.
CGTN spoke with Richard Turrin, veteran investment banker and expert on digital fintech and the author of 'Cashless: China's Digital Currency Revolution' to get an insight into this mess.
CGTN: This is the question most people want the answer to: Are you seeing a replay of 2008 in 2023, as we just saw the largest bank failures since the financial crisis?
Richard Turrin: No, absolutely not. So, listen, everybody out there listening, remain calm. This is not a repeat of the 2008 global financial crisis, and let's explain why. First and foremost, when the major investment banks Lehman Brothers and Bear Stearns went out of business, these investment banks were connected everywhere in the global economy. So, they had a truly global impact.
Now, when we look at Silicon Valley Bank and Signature Bank, which have recently failed, and Silvergate Bank, the third one that also failed in the United States, these are much smaller institutions relative to these larger investment banks. And most importantly, they are not well connected to the global financial system. These banks are significant to the people who have their money in there. They are significant to all of the users, no question. But they do not have these broad international connections that can create a domino effect in the global economy, which was really what happened with the global financial crisis.
CGTN: Who or what is to be blamed for the U.S. banks accumulating unrealized losses of $620 billion in bad investment?
Richard Turrin: The Federal Reserve is fighting or battling a problem that it made. The Federal Reserve kept, what was called the Zero Interest-Rate Policy, or ZIRP, for 7 years, which means that it would have to end eventually, but all the bonds that were purchased during that period devalued as interest rates rose, and interest rates didn't just rise slowly. The Fed raised interest rates at a record level, causing great hardship for emerging market countries.
But now what the U.S. is seeing is how those rate rises didn't just impact foreign countries, but also impact the holdings of American citizens.
The other factor that we have to look at in this crisis is regulation. So, it turns out, quite ironically, that the Silicon Valley Bank president (Greg Becker) was one of the leaders in trying to get the bank regulations rolled back to not include smaller or mid-tier banks, and they succeeded in 2018. Had those regulations been in place, it doesn't mean that the crisis would have been completely averted with Silicon Valley Bank, but would have meant that they would have had a risk management system in place. And they would have known long before that there was a problem.
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