What’s to Blame for the Banking Crisis?

by Siddharth Gundapaneni The American Institute for Economic Research

In the past month, we’ve seen some of the largest bank failures since the Great Financial Crisis, with Silicon Valley Bank (SVB) leading the way, followed by Signature Bank and Credit Suisse. While averting financial meltdown should be the top priority, there is no better time to discuss what caused the crisis in the first place, so as to not repeat the same mistakes.

Many posit that the Federal Reserve’s — and other central banks’ — rapid monetary tightening has devalued long-term assets, causing massive unrealized losses on banks’ balance sheets, prompting depositors to pull much of their savings from banks. While such views are reasonable, we ought to look at why banks were not better prepared to deal with rising rates that would inevitably distort their balance sheets.

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