Stocks of U.S. regional banks are still reeling following the failures of Signature Bank and Silicon Valley Bank. Keith Noreika, executive vice president of Patomak Global Partners and former acting Comptroller of the Currency, joins CBS News’ John Dickerson to discuss.

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LEARN MORE ABOUT: Bank Failures

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Bank failures can have a significant impact on the economy of a nation. In recent times, there have been a number of high-profile bank failures, such as Lehman Brothers in 2008, which led to the global financial crisis. When a bank fails, it can result in the loss of customers’ money, disruption to financial markets, and a contraction in credit supply. This situation requires a coordinated response from the market and government.

The market response to bank failures involves restoring confidence in the financial system. There are a few ways in which this can be achieved. Firstly, other banks need to reassure their customers that they are financially sound and can continue to operate as usual. Banks may also need to provide additional liquidity to the market, such as through loans or purchases of securities. This helps to stabilize prices and prevent large-scale selling.

Another significant market response is the establishment of a deposit insurance scheme. This scheme protects depositors’ money in the event of a bank failure. It is usually operated by the government or the central bank and provides a backstop against systemic risks. This scheme helps to prevent bank runs and restore confidence in the financial system.

The government response to bank failures involves mitigating the impact on the wider economy. One way in which this can be achieved is through monetary policy. Central banks may reduce interest rates, provide additional liquidity to the market, and purchase securities to increase the money supply. These measures help to stimulate economic activity and prevent a recession.

Governments may also provide a bailout to prevent the bank from failing. This involves providing financial support to the bank to prevent it from collapsing. Bailouts are controversial, as they can be seen as rewarding bad behavior by the bank and can create a moral hazard. However, in some cases, bailouts may be necessary to prevent a larger economic crisis.

In conclusion, bank failures require a coordinated response from the market and government. The market response involves restoring confidence in the financial system, while the government response involves mitigating the impact on the wider economy. A deposit insurance scheme, monetary policy, and bailouts are some of the tools that can be used to address bank failures.