Emory finance expert calls ripple effect of bank crisis difficult to predict
Should Georgians be worried by big bank failures?
As the Silicon Valley Bank collapse is under investigation by the Justice Department and SEC, President Joe Biden insists the U.S. banking system is safe. FOX 5 asked a finance professor whether we should worry about a possible crisis here in Georgia.
ATLANTA - Americans are feeling jittery after two of the largest bank failures in U.S. history. President Joe Biden insists the system is safe, as regulators scramble to prevent a run on the banks. FOX 5 asks a local finance expert if Georgia residents should be worried about a possible crisis. The answer is: perhaps.
"Americans can rest assured that the banking system is safe," Biden said Monday morning, trying to stave off anxiety of depositors and investors around the nation. "Your deposits are safe."
Federal regulators closed Silicon Valley Bank on Friday after depositors rushed to withdraw money all at once. Regulators seized Signature Bank on Sunday. Investors on Monday sold off bank shares. Depositors withdrew savings as regulators raced to prevent a run on the banks.
Kevin Crowley, an assistant professor in the finance department at Emory University’s Goizuetta Business School, says depositors should not worry.
"Private citizens will be protected, and have been protected, as long as you have less than $250,000 in the bank, you were fully protected by the FDIC," Crowley said.
Washington Mutual was the only larger bank collapse in U.S. history, failing in 2008. The banking crisis that followed laid the groundwork for the great recession.
When asked if the recent crisis is a repeat of the financial debacle in 2008, Crowley answered:
"I don’t think so. I hope not. In this case, I think there will be some challenges in the banking system. But it’s not as bad as what we saw back 13 or 14 years ago."
Regulators created a program to cover all depositors at Silicon Valley and Signature even those exceeding federally-insured limits of $250,000. Biden says taxpayers won’t pay a dime.
"If the policy ends up being that the government is going to protect depositors no matter what the size of their deposits are, and you do have a lot of banks in trouble, then in some way shape or form the government is effectively providing protection at the cost of government," Crowley said.
Crowley says the problems may be contained for now. But he says they may ripple throughout the banking industry, where, how deep, and how long-lasting, are tough to predict.