Tightening of monetary policy as the root cause of the crisis of the banking system in modern conditions

K. N. Ermolaev, N. V. Manokhina and T. E. Stepanova
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K. N. Ermolaev: Samara State University of Economics, Samara, Russian Federation
N. V. Manokhina: Saratov State University, Saratov, Russian Federation
T. E. Stepanova: Kaliningrad State Technical University, Kaliningrad, Russian Federation

Russian Journal of Social Sciences and Humanities, 2024, vol. 18, issue 1, 190-199

Abstract: In the context of the digital and geopolitical transformation of the financial market, new patterns emerge in the transmission impact of monetary policy on the banking and non-financial sectors of the economy, giving rise to new challenges and risks that require theoretical understanding. The purpose of the article is to study the state of the US financial system with an emphasis on the banking sector and identify patterns of its development. The study was conducted based on a system-synergetic approach. Silicon Valley Bank and several other regional US banks found themselves hostage to the sharp tightening of the Fed’s monetary policy. During the period of “zero” rates, they actively invested in low-cost deposits, high-yield US Treasury bonds, long-term and mortgage bonds, and startups of venture capital companies. A sharp increase in the Fed rate by 20 times in a short period to curb inflation made these securities unprofitable, which led to their downward revaluation on the balance sheets of banks, a sharp increase in losses from the accelerated sale of cheaper assets to cover the outflow of depositors, and a reduction in investments in venture projects. The banking crisis began to hurt the state of the construction industry and the venture capital industry. The current US financial system is not sustainable. The greatest risk is the banking sector, which has suffered as a result of a sharp tightening of monetary policy. The problem of asset valuation has worsened: tightening monetary policy turned treasury securities into unprofitable assets, the process of forced additional capitalization of cheaper collateral securities on the stock market began, and an increase in banking expenses.

Keywords: banking crisis; monetary policy; Silicon Valley Bank; regional banks in the USA; financial stability; cryptocurrency; macroprudential policy; new monetary economics; FR (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:aws:omskjl:v:18:y:2024:i:1:p:190-199

DOI: 10.57015/issn1998-5320.2024.18.1.18

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