Bank crisis averted but global slowdown looms

The panic around the US banking crisis that unfolded earlier in March has subsided but there remain outstanding issues of potential concern, including for Asian economies. Although the US Federal Reserve and other regulatory authorities failed to prevent the crisis, they acted quickly to contain it. They extended deposit insurance to all deposits held in the troubled banks at the centre of the crisis, Silicon Valley Bank and Signature Bank, and backstopped unrealised losses on the Treasury and agency mortgage bonds of all banks, which are estimated at more than US$600 billion (S$797 billion). Bank share prices, which had fallen sharply amid the crisis, have partially recovered.

But while systemic risks have been averted, some banks in both the United States and Europe are still faced with deposit flight, partly driven by yields that are higher than deposit rates on safe assets such as Treasuries and money market funds – a result of sharp interest rate hikes over the past year.