What Is the Banking Crisis of 2023? Is It Over?
What Is the Banking Crisis of 2023? Is It Over?
Laura Rodini updated: Aug 7, 2023 original: May 25, 2023
Banks have been hit by the one-two punch of rising interest rates and a sluggish economy, but the failures at Silicon Valley Bank, Signature Bank, and First Republic Bank may not be the only banking catastrophes to happen in 2023. 2023 may go down in the history books as the year America lost faith in its banks.
Over the course of a few weeks in the spring of 2023, multiple high-profile regional banks suddenly collapsed: Silicon Valley Bank (SVB), Signature Bank, and First Republic Bank. These banks weren’t limited to one geographic area, and there wasn’t one single reason behind their failures.
The news roiled the financial markets, pummeled the banking industry, and unsettled the public. Fears mounted that financial contagion was underway, which happens when a problem in one sector spreads to other areas of an economy, country, or region—with disastrous consequences.
But what exactly had happened to these banks? Why did they fail this year and not during the COVID-19 pandemic, when so many other businesses shuttered?
And perhaps the most important question of all is: Has the banking crisis of 2023 ended?
Why Do Banking Crises Happen?
Here’s the setup: Smaller banks have long been considered to be the backbone of America—with strong ties to their local communities, they have the boots-on-the-ground expertise Wall Street institutions and monoliths like JPMorgan Chase simply can’t offer. According to Goldman Sachs, small banks are responsible for 70% of all small business lending. Small businesses make up a critical component of U.S. GDP, comprising nearly half of the nation’s workforce.
Before the Federal Reserve Act, in the Wild West days of the U.S. financial system, states chartered banks, and they were limited to just one branch. It was a scene straight out of It’s a Wonderful Life: Every little town in America had a town hall, a church, and a bank.
By the 1920s, there were nearly 30,000 banks in America.
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