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Jean-Edouard Colliard is a financial regulation professor at HEC Paris. He previously worked as Economist at the European Central Bank where he gave policy advice to the ECB, including at the highest level.
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The video describes the recent banking crisis in Silicon Valley, where three banks including Silicon Valley Bank failed, causing bank runs and putting pressure on other banks like Credit Suisse. This is reminiscent of past US banking disasters such as the Great Depression and the 2008 recession. Many economists predict that more banks around the world will face similar pressures, and the video raises important questions about the causes and potential consequences of these failures.
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LEARN MORE ABOUT: Bank Failures
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Bank failures have been a subject of concern in the world of economics for decades. They can have devastating effects on the economy, leading some economists to believe that bank failures always cause recessions. However, this may not always be the case.
There is no denying that bank failures can cause a recession. The financial crisis of 2008 is a prime example of this. The crisis started with the collapse of Lehman Brothers, a large investment bank. The failure of Lehman Brothers created a chain reaction that ultimately led to the downfall of other banks and financial institutions. This resulted in a worldwide recession that affected millions of people.
When banks fail, it can lead to a loss of confidence in the financial system. Individuals and businesses may become hesitant to invest or borrow money for fear of losing it. Banks may also become more cautious about lending money, which can lead to a decrease in economic activity.
However, not all bank failures lead to a recession. In some cases, a bank failure may have limited effects on the economy. This is because not all banks are created equal. Some banks are much larger and more influential than others. For example, the failure of a small community bank may only affect the immediate area around the bank. It may not have much of an impact on the larger economy.
Furthermore, the actions taken by policymakers in response to a bank failure can also play a role in determining whether or not a recession occurs. If policymakers take swift and effective measures to address the issue, such as injecting liquidity into the system or implementing stricter regulations, they may be able to prevent a recession from occurring.
Lastly, other factors besides bank failures can cause recessions. A recession can be triggered by a variety of factors such as a decrease in consumer spending, global economic downturns, or changes in government policies. These factors can have a much larger impact on the economy than a single bank failure.
In conclusion, while bank failures can certainly contribute to a recession, they may not always be the sole cause. The severity of the impact will depend on the size and significance of the bank, as well as the response of policymakers. It is important for policymakers to keep a close watch on the banking sector and take appropriate action when necessary to prevent major economic damage.
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So after almost 150 years they still haven't solved bank runs..
No mention of the monetary actions that central banks have taken over the last decade that led banks to load up on low yielding bonds?
Nothing about what is happening should come as a surprise.
SIVB should have hedged the interest rate risk, however, the underlying issue is the result of short-sighted monetary policy.
Tremors always precede a big eruption.
Could you imagine if you had those perfect circles in your eye and you'd have. To stand on stilts in order? For it to be? Those circles to be on the cement otherwise. I'd be climbing the wall 2016 experimentation on or 2019 experimentation on animals. To make sure it's safe for humans. How many of them did they round up and there silicon Valley and that circle building? I've got the gay center over here with a circle instead of the triangle they let me sleep outside. And then I get to eat the food that is Not dirty but just about ready to be thrown away the same day
Why is no one talking about the derivative securities market and how banks like CS are taking crazy risks with depositors funds, and they pay billions in fines? All in the name of profits.
Bank failures are caused by bad economic conditions and don't create bad economic conditions !!!
Tell that to a depositor of a bank like SVB who wanted to make a withdrawal to keep their business running or pay the bills etc, only to find out that 90% their money has been used by the bank utilising it's practice of fractional banking to have been given to another bank or institution as a loan, or as in the case of SVB, to bet on the bond market in a gamble to make money. Perhaps for the benefit of the banks shareholders. In the case of the GFC, was it not banks making a bet or committing fraud on the property market and giving out loans on the so call sub prime market that created the problems of 2008 that is, as said in this video, still felt today? And all caused by banks getting too greedy. So if a bet goes wrong, and economic conditions change in unexpected and unprepared ways like a change in interest rates, not only does the bank go under, but all the depositors money and economic means to support themselves as well, not to mention potentially the whole financial and economic system.
And besides, at the very beginning of this video, was it not shown that banks not having enough of their depositors money made what could have been a cough in the economy to become a major infection of economic influenza. if banks don't cause bad economic conditions, they certainly can make it much worse than it otherwise would have been.
It still leads to terrible incentive to board members and shareholders, sure if they hold the shares when the bank pops they lose but if they have a 3 year run and then leave and cash out they gambled on other people's money, meanwhile executive bonuses can also come in cash so they might not even care about share value
If FDIC is going to back all depositors, I want to create a bank, load up the bank with the riskiest high return short term portfolio I can come up with that is legal for a bank to hold, and give my depositors extra high interest and myself monthly cash bonuses and keep doing this every month until eventually the risky bet fails and the bank loses everything, which is fine because I got my heavy cash bonuses and depositors lost nothing because their money was insured (well they likely will get nailed with inflation, the gain leading up to this should easily cover that)
Americans spending more than they make, bombing the world, telling other what to do, and environmental destruction is coming back to bite them. Karma.
Thank you for explaing things.
calling out johhny harris info on money multiplier . I see
Great video. But let me talk about something important, I see a lot of young people and less young people making mistakes that I think they shouldn't be making. I believe that everyone, young or old investing, should have a business plan that will boost their financial return from three figures to six figures. The investment can be your retirement plan or your future plan, whatever you want, but the most important thing is that you have an investment that is worthwhile
Perhaps bank bailouts need to be fully financed by increasing taxation on the most wealthy 1% or even 10%
13:46 what is the interbank system? I was always taught the money multiplier effect so it is interesting to learn this is not the case
nothing new under the sun
Listening to the french guy talk hurts my head. His accent is super obnoxious.
Always? No.
Often? Maybe.
Can I lose all my debt in a bank failure?
Economic collapse is always eminent.
I want Jean to touch me with his sticky fingers
Economics is a pseudo science at best and a farce for most part. Economists bamboozle people with jargon. None of their theories are empirically validate-able but are considered as "facts". It's just a front for politicians to peddle their agenda, banking on the fact that few people will be able to see through the jargon.
Learned the money multipler effect before it was banned gang B)