Causes and Consequences of the 2023 Banking Crisis

Abstract

This chapter presents a discussion about the causes and consequences of the 2023 banking crisis in the United States. Using discourse analysis, the chapter shows that the 2023 banking crisis was the worst crisis in the US and Europe since the 2007-2008 global financial crisis. This banking crisis was caused by aggressive interest rate hikes by the US Federal Reserve. The increase in interest rates led to huge losses on the portfolio of government bonds held by US banks. The losses led to fears of bank collapse and triggered unprecedented deposit outflows which led to funding and liquidity problems for some banks and the eventual collapse of four banks – Silicon Valley Bank, Signature Bank, First Republic Bank, and Credit Suisse. This crisis showed that the increase in interest rates can unmask hidden vulnerabilities in the banking system.