According to analysts, the US Federal Reserve's short-sighted policy was destructive to the US banking sector with $472 billion in deposits pulled from banks, the largest outflow in the last 39 years. According to former Lehman Brothers executive Lawrence McDonald, another 50 bank failures may engulf America unless the US government does not take appropriate action to stop deposit outflows. At the same time, the US economy is sliding into a recession, the economist warns. The collapse of Silicon Valley Bank (SVB) in March caused a meltdown in the financial markets and heightened tensions. At the same time, the securities of other market participants with similar investment portfolios plummeted. Against this background, the authorities raised concerns about a systemic crisis. However, these fears were not confirmed later. The Fed has launched the Bank Term Funding Program (BTFP) under which troubled credit institutions were offered loans to repay deposits.
Meanwhile, many banks were taken aback by the Fed's rate hikes that harmed the US financial sector, but the damages were ironed out. Inflation accelerated, and the US authorities were trying to curb it. This made it more expensive to borrow from the Fed and made Treasuries cheaper, leading to increased losses. The Fed's reckless monetary policy misled many financial institutions into ignoring credit risks. Businesses relied on the regulator to provide cheap funding under the threat of bankruptcy. Nevertheless, many companies and bank asset managers found themselves in dire straits. Economists say that large banks are too big to fail. Regional financial institutions are the first to go bankrupt. These local banks are the main creditors of small and medium business, which provides 40-50% of US GDP. Thus, deteriorating corporate financing reduces investors' interest and slows economic growth. The US economy is poised to suffer significant losses, economists conclude. In the second half of 2023, Bank of America’s currency strategists expect a moderate decline in the US economy. However, there are more pessimistic scenarios. The economy may slip into a prolonged recession lasting between four and five years, triggered by the inflated US national debt. According to preliminary estimates, the national debt will continue to grow even with restrained spending. At the same time, the amount of money available to service it is shrinking, and the deficits are growing.
