U.S. BANK STRESS -CHALLENGES AND WAY FORWARD: A CASE FOR SILICON VALLEY BANK

Abstract

Stable financial system can be regarded as a backbone of an economy. A financial system is considered stable market when its participants banks are particularly aims to provide access to capital to the business and retail. The objective of study is to understand the recent bank stress faced in US Financial system by the way of Silicon Valley bank and signature bank making the depositors of the bank to raise concern over the security of deposits with the banking. Such a case of Bank run where depositors are in panic to get their own money back raises question over the credibility of such institutions. The study tries to define the vulnerabilities of the financial system into four: valuation pressure, Excessive borrowing by businesses and households,Excessive leverage within the financial sector and Funding risks.Further,elaborating Funding risk refers to When banks in this particular case- faced with such withdrawals, financial institutions would be forced to sell assets fast at "fire sale" prices, suffering losses and possibly going bankrupt in the process. Additionally, this could result in further price reductions that could cause stress throughout markets and at other institutions. This Run on the Bank case faced recently had a spill over effect on other financial participants. The study’s objective is by using the secondary research methodology to study the Case of Silicon Valley Bank failure. Understanding the Banking stress that existed in March 2023.Finding out the reasons for such a crisis. Studying the parameters into Economic and regulatory domain. In economic: the stress was due to factors like interest rate hike highest after so many years as it was due to pandemic ending. Followed by inflationary pressure making Fed to opt for monetary tightening. The impact of interest rate rise caused bond market portfolio losses and credit risk as ratings of Silicon Valley bank were turned negative that further aggravated sentiments of depositors and caused withdrawal of funds till FDIC and Fed took over to normalise the situation. Other regulatory factors Like Dodd Frank Act and stress test are studied in detail. These came in effect post the learnings from the US 2008 crises. Easing regulation for mid-size bank also acted as a factor for the run on the bank situation. US financial market stability parameters have also been considered to understand the spill over effects of the crises. Adding to inflation and interest rate overall looks recessionary conditions are evident US and in Global economy.