2023 banking crisis

2023 banking crisis
SWinxy · CC BY-SA 4.0 · source
Title	2023 banking crisis
Date	2023
Locations	United States; Switzerland; European Union; United Kingdom; Canada; Australia; Singapore; Hong Kong; Israel
Causes	Rapid interest rate rises; liquidity pressures; depositor runs; asset–liability mismatches; risk management failures
Notable	Silicon Valley Bank; Signature Bank; Credit Suisse; First Republic Bank; Federal Reserve; Swiss National Bank

2023 banking crisis The 2023 banking crisis was a series of bank failures, rescue operations, and market stresses centered on several high-profile institutions that triggered global liquidity concerns and policy reactions. Major episodes involved Silicon Valley Bank, Signature Bank, and Credit Suisse, prompting interventions by the Federal Reserve System, Federal Deposit Insurance Corporation, Swiss National Bank, and other authorities. The crisis unfolded amid rapid tightening by the United States Federal Reserve, volatile U.S. Treasury yields, and concentrated depositor bases linked to the technology industry, crypto industry, and regional banking sectors.

Background and causes

Rapid increases in federal funds rate targets set by the Federal Reserve System were implemented to counter high inflation measured by reports from the Bureau of Labor Statistics and influenced asset prices in the U.S. Treasury and mortgage-backed securities markets. Banks such as Silicon Valley Bank, First Republic Bank, and Signature Bank held large portfolios of longer-duration securities issued by entities including Fannie Mae, Freddie Mac, and corporate issuers, exposing them to unrealized losses when yields rose. Concentrated deposit bases tied to venture capital firms like Sequoia Capital, Andreessen Horowitz, and Y Combinator led to rapid withdrawals that outpaced backstop liquidity provided by the Federal Deposit Insurance Corporation and emergency lending facilities at the Federal Reserve Bank of San Francisco. In Switzerland, the collapse of Credit Suisse followed years of litigation involving Archegos Capital Management, Greensill Capital, and regulatory scrutiny from the Swiss Financial Market Supervisory Authority. Interplay among market participants such as Goldman Sachs, JPMorgan Chase, Morgan Stanley, and UBS amplified counterparty concerns.

Timeline of key events

Early 2023: Rising U.S. Treasury yield curves and commentary by Jerome Powell of the Federal Reserve System catalyzed reassessments of bank balance sheets at institutions including First Republic Bank and PacWest Bancorp. March 2023: Rapid depositor withdrawals from Silicon Valley Bank culminated in emergency actions by the California Department of Financial Protection and Innovation and takeover by the Federal Deposit Insurance Corporation; concurrent steps affected Signature Bank and prompted New York State Department of Financial Services engagement. April 2023: Market turmoil spread; Federal Reserve System and FDIC coordinated liquidity measures while JPMorgan Chase and Citigroup monitored exposure; Swiss National Bank and Swiss Financial Market Supervisory Authority confronted stresses at Credit Suisse. Late March–April 2023: UBS agreed to acquire Credit Suisse under arrangements facilitated by the Swiss National Bank and overseen by Chancellor-level authorities including Ueli Maurer-era institutions and European counterparts. Concurrently, regulators in United Kingdom, European Central Bank, Bank of England, and Bank of Canada assessed systemic risk.

Impact on banks and financial markets

Equity markets saw sharp declines in regional banking indices tracked alongside firms like PNC Financial Services, Truist Financial, and SunTrust Banks. Credit default swap spreads widened for banks such as First Republic Bank and Silicon Valley Bank, and interbank funding metrics monitored by London Interbank Offered Rate participants tightened. Larger universal banks including JPMorgan Chase, Bank of America, and Wells Fargo experienced volatility in short-term funding costs while broker-dealers like Goldman Sachs and Morgan Stanley adjusted risk exposures. The crisis affected asset managers such as BlackRock and Vanguard Group through mark-to-market losses in fixed-income funds and prompted hedging activity from CME Group and Intercontinental Exchange participants. Cryptocurrency markets involving firms like Coinbase Global and networks tied to Tether experienced correlated price swings as crypto-linked deposits and lenders came under scrutiny.

Government and regulatory responses

U.S. authorities invoked emergency powers at the Federal Deposit Insurance Corporation and coordinated with the Department of the Treasury and Federal Reserve System to guarantee certain uninsured deposits and broaden access to the Discount Window and the Bank Term Funding Program. The Swiss National Bank provided liquidity and arranged a takeover of Credit Suisse by UBS with capital and liquidity support negotiated with the Swiss Federal Department of Finance. The European Central Bank and Bank of England provided precautionary facilities, while national regulators including the Prudential Regulation Authority and Office of the Superintendent of Financial Institutions (Canada) updated supervision and stress-testing priorities. Policymakers debated adjustments to post-crisis frameworks such as the Dodd–Frank Wall Street Reform and Consumer Protection Act and Basel III capital and liquidity standards enforced by the Bank for International Settlements and Financial Stability Board.

Economic consequences and contagion risks

The crisis raised concerns about spillovers to commercial real estate markets involving issuers like Brookfield Asset Management and mortgage servicers, and to nonbank financial institutions such as Blackstone-managed credit vehicles. Tightening credit conditions risked constraining lending to small business sectors dependent on regional banks and to innovation firms funded by venture capital syndicates including Benchmark Capital and Accel Partners. Contagion scenarios considered exposures among global banks including Deutsche Bank, HSBC, Banco Santander, and Credit Agricole, and potential sovereign implications for bond markets monitored by agencies like Moody's Investors Service and Standard & Poor's. Macroeconomic actors such as the International Monetary Fund and Organisation for Economic Co-operation and Development assessed medium-term growth and financial stability trade-offs.

Investigations, litigation, and accountability

Regulatory inquiries involved the Securities and Exchange Commission, Department of Justice, and national supervisors examining disclosure practices, risk management, and potential securities law violations at institutions such as Credit Suisse and Silicon Valley Bank. Civil litigation and shareholder suits named boards and executives including CEOs and chief risk officers, and law firms specializing in financial litigation pursued class actions. Cross-border coordination among authorities from United States Department of the Treasury, European Commission, and Swiss Financial Market Supervisory Authority addressed resolution planning, depositor treatment, and potential reforms to the Too Big To Fail regime. Legislative hearings in bodies like the United States House Committee on Financial Services and the UK Treasury Select Committee featured testimony from banking leaders and regulators.

Category:Banking crises