Is the banking crisis really over? Or is the REAL banking collapse just getting started? If you want to know why banks worth half a trillion collapsed in a matter of weeks, and for all the latest on the bank crisis 2023, watch our latest film: ‘Can you spot a banking crisis?

00:00 – Is the banking crisis over?
00:37 – What were the combined assets of the failed banks in 2023?
01:02 – Can you spot a banking crisis?
01:23 – How do banks make money?
02:11 – What causes a bank run?
02:55 – How many banks failed during the 80s?
04:26 – What was the Dodd-Frank Act?
06:30 – What impact does a drop in equities have on the banking sector?
07:11 – Does a boom lead to a bust for banks?
07:58 – Can a real estate crash lead to a bank run?
08:52 – Do rising interest rates mean bad news for banks?
10:45 – What can it mean if banks suddenly start taking big risks?

***
Explore trading and start investing with Capital.com.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 84% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

This video is for general information only and is not intended to provide trading or investment advice or any personal recommendations.  The information in this video is indicative, and may become out of date at any given time.

Capital.com shall not be responsible for any loss that you incur, either directly or indirectly, arising from any investment based on any information in this video.  Any information relating to past performance of an investment does not necessarily guarantee future performance.

Please remember spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage,  You should consider whether you understand how spread bets and CFDs work and whether you can afford to take the high risk of losing your money. Invest only what you can afford to lose.  These products may not be suitable for all clients, we therefore recommend that you seek independent advice and ensure you fully understand the risk involved before trading.  You do not own, or have any interest in the underlying assets.

Professional clients can incur losses that exceed their deposits when spread betting and trading CFDs….(read more)

LEARN MORE ABOUT: Bank Failures

REVEALED: Best Investment During Inflation

HOW TO INVEST IN GOLD: Gold IRA Investing

HOW TO INVEST IN SILVER: Silver IRA Investing

Why Do Banks Go Bust? | Can You Spot a Banking Crisis?

The collapse of banks can have far-reaching consequences, causing extensive damage to economies and individuals alike. From the Great Depression in the 1930s to the Global Financial Crisis in 2008, understanding the reasons behind these banking failures is crucial to prevent or mitigate future crises. In this article, we will explore the primary factors that contribute to the demise of financial institutions, and whether it is possible to detect the warning signs of an impending banking crisis.

One of the main reasons why banks go bust is excessive risk-taking behavior. Banks operate on a fractional reserve system, meaning they lend out more money than they actually have in deposits. This enables them to earn interest on loans and generate profits. However, when banks engage in risky lending practices, such as providing loans to borrowers with poor creditworthiness or investing heavily in speculative ventures, they expose themselves to the danger of default. If a significant number of loans turn sour or investments fail, banks can quickly find themselves in financial distress.

Another contributing factor to bank failures is inadequate capitalization. Capital serves as a cushion against losses and ensures that banks can absorb unforeseen shocks without collapsing. If banks have insufficient capital relative to their risk exposure, even a modest downturn in the economy can severely impact their solvency. This was evident during the 2008 financial crisis when several banks faced insolvency due to high exposure to toxic mortgage-backed securities. Insufficient capital hampers a bank’s ability to absorb losses, leading to potential bankruptcy.

Furthermore, liquidity problems can push banks toward failure. Liquidity refers to a bank’s ability to meet the demands of depositors and other short-term obligations. In times of panic or financial turmoil, depositors may rush to withdraw their money, causing a liquidity squeeze. If a bank does not have enough easily accessible funds or fails to attract lending from other financial institutions, it may be forced to close its doors. The inability to meet short-term funding needs can swiftly lead to bankruptcy.

So, can ordinary individuals or experts spot a banking crisis? While predicting an impending banking crisis with absolute certainty is challenging, several warning signs can offer valuable insights. Elevated levels of non-performing loans, which represent loans with irregular or no payments, can signal deteriorating asset quality and credit risks for banks. Rapid credit expansion, fueled by unsustainable lending practices, may indicate the banking system is stretching itself too thin and becoming increasingly vulnerable to downturns.

Furthermore, excessive leverage, where banks have significantly higher debt relative to their equity, increases their vulnerability to losses. Monitoring regulatory oversight and ensuring proper risk management practices within financial institutions is crucial in detecting potential problems.

Additionally, macroeconomic indicators, such as high unemployment, falling real estate prices, or a contracting GDP, can indicate economic headwinds that might eventually affect the banking sector.

To sum up, banks go bust due to factors such as excessive risk-taking, inadequate capitalization, and liquidity problems. While it is challenging to predict a banking crisis with certainty, monitoring warning signs such as non-performing loans, rapid credit expansion, excessive leverage, and macroeconomic indicators can help policymakers, regulators, and stakeholders take precautionary measures. These measures aim to safeguard the stability of the financial system and prevent the catastrophic consequences that a banking crisis can bring.