The American banking sector has been the backbone of the economy in the US.
The so-called American Dream is based on the promise of wealth and security. However, it seems to be collapsing. Silicon Valley Bank is one of the largest banks in the United States, which however has experienced one of the largest bank failures in that country.
For more than a century, US banks of all sizes have played a critical role in keeping the economy afloat. Over the years, the US banking industry has faced many crises, including the Great Depression of the 1930s, the credit crunch of the 1980s, and the financial crisis of 2008.
The 2008 crisis, triggered by the collapse of the housing market, wreaked havoc around the world, leading to recessions and job and home losses. This event had a significant impact on the global economy, with many countries entering global recessions and millions of people losing their jobs and homes. However, the industry has adapted through technology and regulations.
In 2023, though, the US banking sector experienced another devastating collapse, and many experts have warned that it may happen again.
Key Factors Contributing to the 2023 Collapse
The US banking sector collapsed due to a housing bubble, risky banking practices and regulatory mismanagement. Banks were heavily reliant on short-term loans, making them vulnerable to market changes.
When the US Federal Reserve raised interest rates, the banking industry came under enormous pressure, causing a decline in consumer spending and economic growth. The failure of Silicon Valley Bank caused a domino effect that led to the collapse of other institutions. Eventually, it was a major lender to tech startups, resulting in bad loans and defaults.
The interconnectedness of the banking system meant that the collapse of one institution could trigger a chain reaction throughout the system, leading to catastrophic failure. Over the course of five days in March 2023, Silvergate Bank and Signature Bank also failed, causing global bank share prices to decline sharply.
Based on this analysis, such collapse was driven by high leverage and an inability to pay down debts. It had a ripple effect across various industries, impacting society at large.
Impact of the Collapse on Society
The consequences of this collapse were devastating to the general public, leading to job losses, homelessness, and protests. Access to money became difficult, leading to chaos and long bank lines, with vulnerable groups such as low-income families and the elderly suffering the most.
The collapse highlighted the need for a stable and transparent financial system. In a time of uncertainty, Bitcoin emerged as a potential alternative to traditional finance.
Bitcoin operates independently of any government or financial institution, and its decentralized nature offers a level of stability and security that was lacking in traditional banking. It is designed to be fast, transparent, and accessible to anyone with an Internet connection. However, concerns about its adoption and regulations persisted.
Actions Taken by the US Government
US government interventions aimed at stabilizing the banking sector included capital injections, mortgage rate freezes, and additional financing for small businesses. The effectiveness of these measures remains a matter of debate.
Despite the challenges, Bitcoin’s transparency and security have attracted increasing popularity as a financial alternative during the crisis. So far, it cannot be denied that the collapse of the US banking sector has changed the financial landscape forever.
By Marina Meza
