We're lucky to have strong banks

The US crisis shows what can happen when regulation is weak and cash reserves are inadequate

- Alex Dunnin

The US banking crisis of 2023 is a salutary reminder of how important it is for every nation that wants to be taken seriously to have a robust and properly regulated banking sector. The US has just failed on both counts.

In March, the US financial market was rocked by the collapse of two banks and one that teetered on the edge before a last-minute rescue. While it’s been the failure of Silicon Valley Bank (SVB) and its $272 billion in domestic assets that caught most of the international media attention, there was also the failure of the $155 billion Signature Bank and the voluntary winding up of the $16 billion Silvergate Bank.

First Republic Bank, with $298 billion in domestic assets, was only salvaged when a consortium of 10 major banks agreed to inject $40 billion into its cash vaults. Time will tell if their assistance worked, though the signs at this stage aren’t encouraging.

According to US Federal Reserve Bank figures, SVB was the 19th biggest bank in the US ranked on domestic assets, Signature was the 29th biggest. But First Republic was bigger than both – it was the 13th biggest.

As remarkable as was the implosion of these banks and their $725 billion in domestic assets, what is more remarkable is the US banking system itself. By this we mean how small it is, how many players there are, how tiny so many of them are and how absurd is the system of bank regulation.