In just a week and a half in March 2023, the global financial system has been roiled by systemic failures of well established, old and large banks such as Silicon Valley Bank (10th March 2023), Signature Bank (12th March 2023) and Credit Suisse (19th March). The failure of Silicon Valley Bank ended an 867 days run of no bank failures, the second longest in the US since the great depression of 1933. Although there were zero bank failures in 2021 and 2022, markets and customers must awaken to one important fact- that bank failures are common. There have been 565 bank failures in the US from 2000 to 2023.

At the start of any recession, despite economic turmoil the massive stimulus injected by the government grants enough liquidity to hide balance sheet distress and keep banks afloat. It is the years following the recession when the money supply decreases due to US Federal Reserve (Fed) tightening when banks must be most alert. In 2007 there were only 3 bank failures in the US but by 2010 it had risen to 157. With fears of a recession rearing its head in 2023, the next few years can witness severe turmoil in the banking sector.

As per RBI’s statement in February 2023, irrespective of what Indian policy makers do to lift the economy, any monetary tightening in the US leads to a decrease in output in India and this impact is felt for nearly three years. The Fed has already raised policy rates eight times totaling 450 basis points since March 2022 and is expected to raise interest rates three more times in 2023 as per a Goldman Sachs prediction. The Indian economy can better handle the upcoming monetary policy shocks and dip in economic activity through better risk management. spocto is ever ready to support the banking and financial industry with cutting edge tools to mitigate risk and improve debt support.