Global banking crisis: what just happened? Is the risk of recession increasing?

() — Last Friday, the biggest US bank collapse since the global financial crisis was unfolding in real time when a major technology lender succumbed to a classic bank run.

customers of Silicon Valley Bank they were frantically withdrawing their money from the California-based lender before US regulators stepped in to seize control. But the collapse terrified markets, hurt weaker financial institutions already struggling with the unintended consequences of rising interest rates, and hurt self inflicted.

A week later, a second regional US bank, Signature Bank, was closed, a third, First Republic Bank, was strengthened and became the first major threat since 2008 to a bank of global financial importance: Credit Suisse ( The threat, at least for now, has been avoided).

Now, relative calm has been restored only thanks to the provision of large sums of emergency cash by lenders of last resort, central banks, and some of the industry’s strongest players.

Nonetheless, markets remain jittery: the benchmark indices of US and European bank shares have lost 20% and 13%, respectively, since the close of business last Wednesday. Wall Street opened lower on Friday and First Republic shares fell about 16%.

What happened?

Friday March 10: the US government’s Federal Deposit Insurance Corporation (FDIC) took control of Silicon Valley Bank (SVB). It was the biggest US banking collapse since Washington Mutual in 2008. The wheels began to spin 48 hours earlier when the bank suffered a multi-billion dollar loss cashing in US government bonds to raise money to pay off depositors. He tried unsuccessfully to sell shares to shore up his finances. That triggered the panic that led to his downfall.

Sunday March 12: the FDIC closed Signature Bank after a run on its deposits by customers who were frightened by the implosion of the SVB. Both banks had an unusually high proportion of uninsured deposits to finance their businesses.

Wednesday March 15: After seeing Credit Suisse shares collapse by as much as 30%, Swiss authorities announced backing for the country’s second-largest bank. It calmed the immediate market panic, but the global player is not out of the woods yet. Investors and clients are concerned that you don’t have a credible plan to reverse a long-term decline in your business.

Thursday March 16: First Republic Bank was on the brink when customers withdrew their deposits. At a meeting in Washington, US Treasury Secretary Janet Yellen and Jamie Dimon, chief executive of America’s largest bank, drew up plans for a private sector bailout. The result was an agreement with a group of US lenders to deposit tens of billions of dollars in cash with First Republic to stem the bleeding.

How much did the ransom cost?

Almost $200 billion so far in direct support from the central bank. By guaranteeing all deposits at Silicon Valley Bank and Signature Bank, the US Federal Reserve is committing $140 billion. Then there is the $54 billion that the Swiss National Bank offered Credit Suisse in the form of an emergency loan.

The Fed also agreed record amounts of loans to other banks this week. Banks have borrowed nearly $153 billion from the Federal Reserve in recent days, surpassing the previous record of $112 billion set during the 2008 crisis.

The banks also resorted to almost $12 billion in loans from the Fed’s new emergency lending program set up earlier in the week with the goal of preventing more banks from collapsing.

The $318 billion that the Fed has lent in total to the financial system is about half of what was lent during the global financial crisis.

“But it’s still a large number,” JPMorgan’s Michael Feroli said in a note to investors on Thursday. “The view of the glass half empty is that the banks need a lot of money. The glass half full is that the system is working as intended.”

The banking sector has also shelled out billions. JPMorgan Chase, Bank of America and Citigroup are among a group of 11 lenders providing a $30 billion cash infusion aimed at shoring up confidence in First Republic Bank.

HSBC has reportedly committed more than $2 billion to SVB’s UK business, which it bought for £1 on Sunday.

Is my money safe?

If you have less than $250,000 in an account at an FDIC-insured US bank, you almost certainly don’t have nothing to worry about. Joint accounts are insured up to $500,000.

European countries operate similar programs. In Switzerland, up to 100,000 Swiss francs ($108,000) are insured per depositor.

Clients of failed banks in the European Union are promised €100,000 (US$105,431) of their deposits. Joint account holders may receive combined compensation of €200,000 (US$210,956).

In the UK, depositors can be returned up to £85,000 ($102,484) if their bank fails, doubling to £170,000 ($204,967) for joint accounts.

Will it be more difficult to get a loan?

The short answer is yes. Stressed banks could pay far more attention to the creditworthiness of borrowers, whether they are businesses looking for loans or homebuyers trying to find mortgages.

“If banks are under stress, they may be reluctant to lend,” US Treasury Secretary Janet Yellen said in testimony before the Senate Finance Committee on Thursday. “We could see credit become more expensive and less available.”

Christine Lagarde, President of the European Central Banktold reporters on Thursday that “persistently elevated market tensions” could further tighten credit conditions that were already tightening in response to rising interest rates.

Does this make a recession more likely?

Again yes.

Here’s what Yellen also told the Senate Committee: “That could make this a source of significant economic downside risk.”

Goldman Sachs said Wednesday that mounting tension in the banking sector raised the odds of a US recession in the next 12 months. The bank now believes the US economy has a 35% chance of entering a recession within a year, up from 25% before the banking sector collapse began.

The second largest economy in the world, China, it also wobbles despite a burst of activity following the swift end to the draconian measures against covid-19 late last year.

In a surprise move on Friday, China’s central bank cut the amount of money the country’s lenders must hold in reserve in a bid to keep cash flowing through the economy.

Anna Cooban contributed to this article.