Banking jitters weigh on US economy

The most worrying issue in global markets lately is undoubtedly the process that began with the collapse of Silicon Valley Bank (SVB), the sixteenth largest bank in the United States. The fact that the risk of SVB's collapse turning into a full-fledged banking crisis and spreading to the whole world was discussed at one point is a sign of this. Despite statements in my recent articles that the crisis in the US has been brought under control, the topic is still hot, as evidenced by some statements this week from US President Biden and Treasury Secretary Yellen that support my claim.

BIDEN BLAMES "GUILTY TRUMP"

Yes, you didn't read the title of this section wrong. While the effects of the crisis in the US banking system continue to cause concern, President Biden called for tighter banking regulations in the wake of the latest bank failures in the country, blaming some of the regulations implemented during the Trump era.

The White House statement emphasized that the protection measures and oversight for large regional banks relaxed during the Trump era need to be tightened again to strengthen the banking system. The statements are not limited to this. The Biden administration called for comprehensive reform of the banking sector regulators, stating that despite SVB having over $200 billion in assets, it never underwent a comprehensive capital stress test.

YELLEN ALSO CALLS FOR ACTION

On the day Minneapolis Fed President Neel Kashkari said it was too early to evaluate the impact of SVB's bankruptcy on the economy, US Treasury Secretary Yellen made a statement calling for a review of banking regulations after the latest bank failures.

In discussing the recent bankruptcy of SVB Financial Group, Janet Yellen has expressed concern over the ability of current regulatory and supervisory systems to adequately handle the risks faced by banks today. Yellen acknowledged that implementing regulations would come with a cost, but that the potential cost of a financial crisis resulting from bank failures would far outweigh the expense of such measures.

Both Yellen and President Biden have hinted at the implementation of new regulations in the US banking system, which may come at a cost. It remains to be seen whether these new measures will effectively prevent a deeper crisis from developing.

S&P WARNS OF HIGH INTEREST RATES

In the same week that the Euro/Dollar exchange rate reached its highest point in the past two months, Standard & Poor's issued an important warning regarding the impact of high interest rates on credit financing costs and asset prices. The credit rating agency noted that stricter financial conditions could expose many economies to the risk of a "hard landing". The report also pointed out that the atmosphere of banking stress in the US and Europe was an example of how quickly confidence could erode under such circumstances.

In short, the SVB bankruptcy has brought serious risks to light. Criticisms of the Federal Reserve's rapid tightening and the impact of bank failures have led to calls for a more dovish approach, which could lead to expectations of the Euro/Dollar exchange rate reaching 1.15 by the end of the year, surpassing the previously anticipated level of 1.10 more quickly.