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Pacific Western Bank and Silicon Valley Bank Logos
Banking crisis continues
First Republic Bank, seized and sold to JPMorgan Chase on Monday, was supposed to be the last victim of the US financial-sector crisis. But there’s still plenty of volatility in the regional banking market — which began with the collapse of SVB in March.
The latest on the apparent chopping block? PacWest. The LA-based midsize lender saw its shares plummet by more than 50% Thursday before news broke that it was selling a $2.7 billion loan portfolio.
PacWest’s liquidity has benefited from federal programs set up to protect troubled banks after the demise of SVB and Signature Bank. But like SVB, it also has large numbers of unsecured depositors and a high concentration of tech companies on its balance sheet. PacWest might just be one bank run away from collapse.
The downturn of midsize regional banks will hurt commercial lending to small businesses. Seizing and selling small banks could create a credit crunch, especially in lower-income US regions. With rapidly rising interest rates creating perilous conditions for banks, looming panic in the real estate sector, and fears of a recession on the rise, further instability seems more likely than not.
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Larry Summers explains the banking crisis
On GZERO World, Ian Bremmer and former US Treasury Secretary Larry Summers discuss a range of topics, including the global banking system, the impact of AI on the labor market, and a controversial solution for rebuilding Ukraine.
Summers, an expert on inflation, provides valuable insights into recent bank failures that have caused concern among investors worldwide. He discusses whether the current situation constitutes a banking crisis, explores the role that inflation is playing in contributing to the banking problems, and makes predictions about the duration of the current financial turmoil.
He and Bremmer also touch on the impact of AI on the labor market, with Summers warning of significant changes that will cause profound shifts in traditional hierarchies and ways of thinking, which may make influential groups uneasy.
Summers also offers a provocative solution for rebuilding Ukraine: seizing frozen Russian assets.
Note: this interview was featured on an episode of GZERO World with Ian Bremmer on April 3, 2023: The banking crisis, AI & Ukraine: Larry Summers weighs in
The next economic crisis Larry Summers is worried about
On GZERO World, Ian Bremmer and former US Treasury Secretary Larry Summers discuss the policy response to the recent banking crisis involving Silicon Valley Bank and the Biden administration's actions.
Summers rates the government's move to step in and guarantee depositors in SVP positively but expresses concern over the high cost of the SVB bailout.
He also worries about the real estate sector, particularly the office building sector and corporate lending to mid-size businesses.
Watch the GZERO World episode: The banking crisis, AI & Ukraine: Larry Summers weighs in
Is your money safe? Larry Summers on the banking crisis
Banks, in many ways, are the backbone of the economy, but when Silicon Valley Bank and Signature Bank recently failed, it raised some tough questions about the stability and regulation of financial institutions. On GZERO World, Ian Bremmer and former US Treasury Secretary Larry Summers dive deep into the crisis and explore the complex factors that led to the banking turmoil.
Summers explains that the failures of these banks were caused by a combination of factors, including an increasingly digital world with high interest rates, risky investments, and long-term bonds that decreased in value as interest rates rose.
This led to depositors becoming alarmed about the security of their money and quickly moving it to other banks that offered higher returns. The banks' inability to manage these withdrawals sparked fears of a bank run and ultimately led to government intervention.
Summers also criticizes the management of Silicon Valley Bank for their "incompetence" and the Federal Reserve's regulation for not “stopping the accident that was waiting to happen.”
“In many ways, the financial system is like an anesthesiologist," Summers remarks, "nobody much notices a job that they're doing until something screws up."
Watch the GZERO World episode: The banking crisis, AI & Ukraine: Larry Summers weighs in
Ian Explains: Banking turmoil and the panic pandemic
There’s talk of another surge. We're talking, of course, about…banking.
Much of what’s driving today’s banking drama—resulting in the most significant government intervention since the Great Recession—is a virus more contagious than COVID-19: panic, Ian Bremmer explains on GZERO World.
It all started with the US government's takeover of Silicon Valley Bank (SVB) to prevent a $42 billion bank run. This move, coupled with the FDIC's closure of Signature Bank, sent shockwaves across the market, resulting in the most significant government intervention in banking since the Great Recession. Panic soon spread across the Atlantic, with Credit Suisse's shares plummeting by 30% and Switzerland's largest bank, UBS, hastily buying its struggling counterpart in a bid to calm the markets.
But will the public and private intervention be enough to contain the panic virus, or is this just the first wave of many to come? Only time will tell.
Watch the GZERO World episode: The banking crisis, AI & Ukraine: Larry Summers weighs in
The banking crisis, AI & Ukraine: Larry Summers weighs in
The recent spate of bank failures has caused significant turbulence in markets and left investors jittery across the globe, from Silicon Valley to Switzerland. But is this a sign of a systemic banking crisis or of a more fundamental flaw in capitalism? In an interview with Ian Bremmer on GZERO World, former US Treasury Secretary Larry Summers provides an in-depth analysis of the situation.
Summers is critical of the management of Silicon Valley Bank and the federal government's intervention, which failed to prevent the banking turmoil. He also expresses concerns about the real estate sector, particularly when it comes to office buildings, and corporate lending to mid-sized businesses.
The conversation also delves into the impact of artificial intelligence on the labor market, with Summers cautioning that AI will "bring about significant changes" that will “profoundly alter traditional hierarchies and ways of thinking,” which may threaten influential groups. It’s even probable, he tells Bremmer, that we’ll see “restrictionist and protectionist policies that limit our ability to benefit from these technologies or slow down [their development].”
Summers also proposes a contentious solution to rebuild Ukraine: seizing frozen Russian assets.
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Getty Images/Chip Somodevilla
Podcast: Larry Summers breaks down the banking crisis
Listen: On the GZERO World podcast, Ian Bremmer and former US Treasury Secretary Larry Summers discuss the recent bank failures that are disrupting global markets and worrying investors worldwide. They discuss whether the current situation constitutes a banking crisis and explore the role of inflation in contributing to the problems. As an inflation expert, Summers provides valuable insights and predictions on the duration of the financial turmoil.
Additionally, he warns of the significant changes that AI could bring to traditional hierarchies and proposes a controversial solution for rebuilding Ukraine: seizing frozen Russian assets.
Subscribe to the GZERO World Podcast on Apple Podcasts, Spotify, Stitcher, or your preferred podcast platform, to receive new episodes as soon as they're published.- Podcast: Inflation nation: How Larry Summers predicted skyrocketing prices in the US ›
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A graph comparing the US Federal Funds Effective Interest Rate with the year-on-year percentage change in inflation.
The Graphic Truth: US interest rates vs. inflation
All eyes are on the US Federal Reserve, as it is set to announce Wednesday whether it’ll raise interest rates amid the recent banking turbulence.
The Fed’s decision will hinge on what central bankers think is a bigger priority: fighting inflation or stabilizing the financial sector following the recent collapses of Silicon Valley Bank and Signature Bank.
While it could stay the course in its inflation fight with another rate hike, the Fed is coming under growing pressure to ease investors’ anxieties by leaving interest rates be. But doing that risks giving in — temporarily, at least — to lasting inflation. The longer the Fed waits to control rising prices, the worse chance it has to reach its 2-3% inflation target without triggering a recession.
Also, high-interest rates are partly to blame for the recent financial turmoil on both sides of the Atlantic. Right-leaning critics argue that near-zero rates for too long made lending too cheap. Meanwhile, some on the left say that raising rates too quickly made borrowing too expensive, hurting the balance sheets of banks like SVB.
What do you think the Fed’s next move should be? Let us know here.