Since March this year, the bank crisis triggered by the collapse of Silicon Valley Bank in the United States is still fermenting. Following the collapse of the Signature Bank, the First Republic Bank was also taken over. At the same time, media reports revealed that nearly 190 banks in the United States are facing the risk of collapse. This raises the question: why is it so difficult to rescue banks in the financially developed United States?

According to media reports, the First Republic Bank was closed in early May due to a broken funding chain, becoming the third regional bank to be closed in two months. According to USA Today, research shows that nearly 190 banks in the United States are at risk of collapsing.

"Since March, three regional banks in the United States have collapsed, and one is on the verge of collapse. Will the United States soon see a series of bank collapses?" The article states that after the First Republic Bank, the San Francisco-based Western Pacific Bank is also considering selling, and its market value has also plummeted.

For uninsured depositors of American banks, if a bank collapses, these depositors will lose part of their savings, which may prompt them to withdraw their money. A study on the vulnerability of the US banking system shows that even if only half of the uninsured depositors decide to withdraw their savings, 186 banks in the United States will be at risk of collapse.

According to ABC News, during the morning trading session on May 4th, the stock price of Western Pacific Bank in the United States plummeted by more than 50%. Many people are worried that the bank will become the fourth collapsed bank in two months in the United States. The stock price of Western Pacific Bank has fallen by more than 85% since 2023, and hundreds of millions of dollars in market value have evaporated. This financially troubled bank issued a statement on May 3rd acknowledging that it is considering potential offers from investors and is also considering selling $2.7 billion in loans, without ruling out all possible options.

The news that nearly 190 banks in the US faced bankruptcy was shocking. Although these banks were not large, their bankruptcy was an important factor in the stability of the entire financial system. Why was it so difficult to rescue the US banking crisis, and how should we view this situation?

First, the excessive dispersion of US banks caused management difficulties. The US is a financial powerhouse, but with numerous banks, each bank fights alone, making it difficult to form a unified response. The US banking industry is highly dispersed, and due to the relatively loose banking regulatory system of the federal government, banks have significant autonomy in operational strategy, risk management, capital adequacy, etc. Therefore, the US has numerous banks of different sizes, and there is a lack of effective information sharing and cooperation mechanisms among banks. Moreover, the competition between banks is very fierce, and they often focus on their own interests rather than the interests of the industry as a whole. This makes it difficult to form a unified response when a banking crisis occurs, and bank rescues are difficult to implement.

Second, the risks arising from the continuous interest rate hikes by the Federal Reserve are increasing. In the early stage, the Federal Reserve maintained low interest rates for a long time, and during this period, many US banks purchased a large amount of bond investment portfolios in pursuit of higher yields. With the Federal Reserve raising interest rates, the value of these bonds was significantly reduced, and problems such as reduced liquidity and mismatch of short-term and long-term interest rates emerged. When banks purchase these bonds, they often use a leveraged amplification effect to achieve higher investment returns. However, because these bonds are of low quality and often high-risk, the value of these bonds was significantly reduced during the Federal Reserve's interest rate hikes, resulting in severe imbalances in these banks' balance sheets.

Third, bank problems have almost become ubiquitous. As problems with banks are not limited to just one, this is almost a common problem for every bank, and it is easy to create a chain reaction. The risk contagion effect in the US banking industry is very apparent, and the collapse of one bank often triggers panic selling in other banks, resulting in a collapse of confidence in the entire banking industry. In this situation, the government often needs to take emergency measures to stabilize the market. However, due to the numerous banks, the government's rescue efforts often cannot cover all banks, making it difficult to avoid chain reactions.

Fourth, depositor panic is spreading. Due to the bankruptcy of multiple banks, depositors have become frightened birds and bank runs have intensified. During the US banking crisis, as the number of bank failures continued to increase, depositors' confidence in banks was severely undermined. They were worried that their deposits would not be guaranteed and began to withdraw their deposits. In this situation, the bank's funding chain will soon be broken and unable to operate normally. At the same time, depositor panic can also trigger more people to join the queue, making it difficult for banks to maintain liquidity.

Overall, the US banking crisis was difficult to rescue due to the excessive dispersion of banks, risks arising from the Federal Reserve's interest rate hikes, ubiquitous bank problems, and spreading depositor panic.

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