The second largest bank closure in U.S. history sent fear and shock waves through the financial sector. A duration mismatch of assets and liabilities at Silicon Valley Bank led to a classic run on the bank. Policymakers were swift to react, injecting liquidity into the system to avoid contagion and restore investor confidence. Still, before the dust settled, two more regional banks closed their doors for good. Credit Suisse, a giant in Switzerland, also collapsed in March, but it has been plagued by scandals for decades. Restrictive policy, along with bad management, led to the bankruptcies. As of now, we believe contagion risk is low, as policy makers didn’t hesitate to ensure financial stability. Still, the closures provide a complication for central banks as they try to lower inflation.
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