By Maryam Sadr | Staff Writer
The world of economic studies has always been caught in the debate over how much the government should intervene in the market. Whether we like it or not, the Great Depression taught us a harsh lesson about the necessity of government regulation of the market in the short term when dealing with the crisis. That does not mean that the costs associated with these restrictions should be disregarded. After all, the phrase “there is no such thing as a free lunch”, used in economics speaks for itself, stating that every choice and action has a price and consequence.
The financial market is one of the riskiest markets, and it occasionally experiences unpredictable collapses, usually during periods of economic instability. Banks, as the intermediary within this market, can easily get volatile in times of crisis. Hence, they must gain and retain a high degree of credibility to keep and attract more depositors. Unfortunately, sometimes despite banks’ efforts, the conditions put them in a position where there is no way out but to suffer bank runs.
The world is going through its first financial market shock since the 2008 financial crisis, as the two oldest banks Silicon Valley and Signature Banks went bankrupt. Looking back, we discover that this incident was expected to come up sooner or later. The US economy has been negatively affected in the past couple of years first by the Covid-19 pandemic and later by the Ukraine war. In 2022, inflation rose to 8.5%, one of the highest rates since the drop in the inflation rate in 1982. The Federal Reserve was only able to fight the rapid increase in the inflation rate through adjustments in the monetary policies, hence, they had been gradually increasing the interest rate. Sadly, the cost of the above intervention of the Fed to save the economy from inflation was paid by the SVB and Signature Bank. However, it didn’t end there, due to a high level of pressure and worry, the 166-year-old Credit Suisse bank too collapsed in less than a week.
While the US government has granted the safety of its banking systems along with paying back the depositor of the two collapsed banks, the Fed is still increasing the interest rate by a small magnetite. The above circumstances have led to some forecasting the possibility of the world going into another global financial crisis.