Chief economist for Citigroup Nathan Sheets noted that the increase in profits and the larger risks were associated with increasing globalization and global integration.

“When March began, there was no obvious relationship between a tech-focused bank in Silicon Valley and the heart of Swiss finance, almost 6,000 miles away. Yet by drawing scrutiny to the entire banking industry, SVBs collapse set in motion events that culminated in the forced sale of Credit Suisse, which first opened its doors in 1856,” Lynch said.

He cited some a number of economists who said that economic turmoil cannot be eliminated, economists said, and banks must manage the tension between using short-term depositors’ money to fund long-term residential or commercial investments. Getting that balance right can be difficult.

Lynch then reviewed the recent history of US President’s attempts to rescue the economy. President George W. Bush kept General Motors and Chrysler afloat in December 2008 with government loans, temporarily guaranteed money market mutual funds and invested taxpayer funds in the nations largest banks. President Barack Obama subsequently extended the automakers financing and shepherded them through bankruptcy while also unleashing what he called “the most sweeping economic recovery package in our history,” the $787 billion stimulus legislation. Then President Trump secured a $2.2 trillion relief bill when COVID-19 hit.

Lynch concludes by saying that “the Feds response to SVBs failure illustrates how hard it is to unwind emergency aid. For much of the past year, the Fed has been gradually reducing its balance sheet, withdrawing some of the extraordinary support it provided the economy during the pandemic.”

Source: Qatar News Agency