On Monday, spurred by the Silicon Valley Bank collapse, President Biden addressed the nation in the wake of the ongoing banking crises to reassure Americans that we “can have confidence that the banking system is safe. Your deposits will be there when you need them.” Unfortunately, the stock market disagreed.
Trading on more than a dozen small to mid-sized banks was forced to halt after prices continued to free fall. However, the crisis seems fueled less by the fears of an impending bank run depleting available cash—emergency measures taken by the government over the weekend appear to have largely staved off that fear—than by concerns that what happened at Silicon Valley Bank last Thursday is a sign that the Fed’s attempts to control inflation through interest rate hikes “may be cracking the banking system.”
A closer look at what went wrong last week shows that such fears are not entirely unfounded.