Global Economy Immerse after US Bank Fiasco, Know how India Controlled Crisis & Aftermath here
The world witnessed economically slump after the recent decline of Silicon Valley and Signature Banks in the United States. Indian regulators have also been highly strung amid a high-inflation environment. Check about the banks that have failed in the past 20 years.
US Bank Bankruptcies
Financial systems have reportedly led to a major downturn around the globe. The disruption caused by the decline of the leading banks further engulfed bank stocks with growing concerns. The regional banks are under nervous breakdown after the 16th largest bank in the US namely Silicon Valley Bank (SVB) comes under loss.
Moreover, New York-based Signature Bank has also been shut down by the officials on March 12, 2023. Worried customers withdrew over ten billion dollars in deposits. This has also resulted in a stoppage in trading after several lenders faced a record fall. It seizes up financial stability among the masses when interest rates have been increased by global central banks.
Roku had one of the biggest deposits in SVB of $487 Million.— Graham Stephan (@GrahamStephan) March 12, 2023
This was 26% of its cash and cash equivalents. After declaring its exposure, its stock dropped by 3%. pic.twitter.com/ZVvraL5MmL
Hiking interest rate is one of the major strategies adopted by Central Banks for taming Inflation and it further brings Recession. The SVB and Signature Banks’ halt can be considered the second-largest bank failure in history. In 2008, the operations of Washington Mutual Bank ceased.
Economists Examine Financial Cracks
During the era of economic fallout, tech and startup-centred SVB Bank was closed by the banking authorities. It was followed by the sudden fateful collapse of Signature Bank. US Authorities such as the Federal Reserve, Treasury and Federal Deposit Insurance Corp recently declared a series of emergency measures in order to elevate the banking system.
Indian controllers have also faced similar predicaments regarding the health of the financial systems. Banking crises are not new to the world, and RBI and Banking Regulation Act continue to be powerful tools in curbing the current crises. Given below are the banks’ insights reported by the country’s central bank and regulatory body, the Reserve Bank of India.
YES Bank Case Study
The hardship faced by YES Bank flares up after the clean-up act of bad loans by the RBI, which induced banks to report their asset quality. After the RBI Survey, it was discovered that the bank was strained upon the balance sheet and did not have enough capital for operational business.
Also, the fear of decline prompted customers to start taking out deposits. The Reserve Bank of India stepped in to initiate rearguard action. It replaced the YES Bank management and further imposed a moratorium. The reconstruction scheme was also brought up involving 9 banks led by SBI acquiring a 49% stake in the Bank.
Lakshmi Vilas Bank
Talking about the Lakshmi Vilas Bank, its failure has been caused by multiple irregularities in lending large corporate loans and the squandering of public fund deposits. The bank had a loan of Rs 720 crores to former Ranbaxy promoters, Shivinder Singh and Manvinder Singh. This did not go well and crumbled the gross finances.
The RBI has placed a suspension on the bank’s workings and deposit withdrawals have been restricted. The ‘YES Bank’ was later consolidated with DBS Singapore's India unit after the moratorium was raised.
Punjab & Maharashtra Co-operative Bank (PMC)
The RBI detected that PMC Bank failed to report the entire data related to its bad loans despite defaults. Apart from this, more issues were highlighted like corporate governance issues where promoters conspired with the bank. The central bank (RBI) enforced a strict moratorium on the bank and due to this depositors were unable to withdraw cash beyond a certain limit.
Global Trust Bank
In the year 2001, the Global Trust Bank (GTB) was caught involved in a stock market scam. After RBI studied GTB’s accounts, the bank had high exposure to capital markets which was more than the regulator's prescribed limit and gave away loans to speculators in the 2000s. When the market sharply deteriorated, the bank suffered heavy losses. The RBI review determined that the bank's net worth turned negative leading to a forced shutdown.
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