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Two US banks' fall sounds caution for economy: Analysts

FHM HUMAYAN KABIR | March 19, 2023 00:00:00

The collapse of two US banks sends a cautionary signal to the global as well as Bangladesh's economy as it evokes the spectre of the 2008 financial meltdown, analysts said on Saturday.

The responses of the US banking regulators to the banks in the next couple of weeks will determine the future of the global financial structure, they observed.

Economists expressed their cautious notes on the future of Bangladesh economy following the US bank collapse.

Bangladesh's economy might be affected if the US regulators' response to the crisis is improper, they said.

Two US banks-Silicon Valley Bank (SVB) and Signature Bank-have collapsed since 10 March, showing the biggest bank failures since 2008.

Both catered to businesses and had ties with the technology industry. They were struggling due to sharp falls in cryptocurrency and souring sentiment among investors.

As the 16th largest American bank, the SVB said it needed to raise money, customers panicked and rushed to withdraw their deposits.

In less than 48 hours, nearly a quarter of the bank's funds had gone.

The failures came just days after troubles at a third bank, crypto-specialist Silvergate, forced it to wind down.

US treasury secretary Janet Yellen said they felt that there was a serious risk of contagion that could have brought down, and triggered runs on, many banks.

Meanwhile, the USA is the largest export destination of Bangladesh as its apparel and textile manufacturers made a shipment of $10.04 billion in 2022, showed the US Department of Commerce's Office of Textiles and Apparel (Otexa) data.

"Both US banks are regional banks. The US regulators have already taken over the issue and pledged to protect the depositors, small and big. But we have to observe the regulators' future actions for big depositors and shareholders," former World Bank economist Dr Zahid Hussain told the FE.

"If the regulator fails to recover the collapse of the banks there could be contagious effect and other commercial banks will be affected. In that case, the global economic scenario will be bleak and Bangladesh will be affected too."

State minister for planning Prof Dr Shamsul Alam said, "Two US banks suddenly collapsed last week. It means the global economic turmoil won't be over soon."

"In that case, Bangladesh economy might be affected. There is no room for complacency with our better economic conditions following the US bank collapse."

SANEM executive director Dr Selim Raihan said Bangladesh's financial sector is not directly involved with the US banks, but their collapse is definitely a further blow to the current global economic recession.

"If the global financial structure is affected following the US bank impact, another 2008-like global meltdown could be observed. In that case, Bangladesh will also be hit hard," he told the FE.

Some experts feel the meltdown in the banking sector has evoked the spectre of the 2008 crisis, when some of the biggest US banks collapsed, knocked by a decline in the housing market, ultimately leading to enormous government bailouts and a global economic recession.

Others compare the situation to the 1980s - the last time inflation was this high and the US central bank hiked rates hurriedly - leading to years of bank failures there known as the savings and loan crisis.

The latest collapse of the two banks has also affected the Swiss bank giant Credit Suisse.

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