Is the US headed for another banking crisis?

March 2024 is making investors nervous. A major scheme to prop up the US banking system is ending, while a second may be winding down. Some economic commentators fear another banking crisis. So how worried should we be?

The red letter day is March 11, when US central bank the Federal Reserve will end the bank term funding program, a year after it began in response to the failures of regional banks Signature, Silvergate and Silicon Valley. These banks were brought down by customers withdrawing deposits en masse, both because many were tech or crypto businesses that needed money to cover losses, and because there were better savings rates available elsewhere.

This damaged the banks’ profitability at a time when raised interest rates had already weakened their balance sheets by reducing the value of their holdings in government bonds. Silvergate failed first but Silicon Valley Bank’s collapse on March 10 was particularly memorable. It triggered a bank run by announcing it needed to raise capital after being forced to sell bonds at a loss.

There soon followed the failures of Signature and also Swiss bank Credit Suisse, which had to be taken over by neighbouring giant UBS. There had been longstanding problems at Credit Suisse, but heightened anxieties on the back of the US upheaval delivered the final blow.

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