Experts Advisory: Banking Crisis Roils Markets

Newswise — ALBANY, N.Y. (March 16, 2023) — The recent collapse of Silicon Valley Bank (SVB) marked the second-largest bank failure in U.S. history after Washington Mutual’s collapse in 2008. Following SVB’s takeover by the Federal Deposit Insurance Corporation (FDIC), other regional lenders have come under increased scrutiny, driving down stock prices and roiling global equity markets.

SVB’s collapse was quickly followed by Signature Bank of New York, and now global investment firm Credit Suisse is under pressure, signaling a potential “contagion” effect throughout the financial services sector. The pressure on Credit Suisse forced the Swiss National Bank to offer a $54 billion “lifeline” to restore confidence. After the move, the Central European Bank hiked rates by half a percentage point Thursday, as it works to combat Europe’s 8.5% inflation rate.

University at Albany Rockefeller College of Public Affairs and Policy Public Service Professor Kevin Bronner sees rising interest rates as a critical factor in the collapse of SVB and the downward pressure on banks in general.

“There are a number of basic issues here. The big increases in interest rates during the last 12 months made some of the bank assets less valuable,” said Bronner, who specializes in microeconomics, governmental accounting, regulatory administration, public finance, public budgeting, and strategic planning. “The broader question for investors is whether bank assets in today’s market are worth their dollar book value. If they are not their stock price should be falling.”

The downward pressure on the banking sector also adds a layer of uncertainty for the Federal Reserve as it weighs whether to continue interest rate hikes as it battles broader inflationary pressures throughout the U.S. economy.

“As bank stocks have continued to fall, we’ve also seen yields falling in treasury markets,” said Bronner. “This makes it difficult for the Federal Reserve to raise interest rates in an effort to fight inflation.”

The Federal Reserve Board meets March 21-22 to determine its next steps to fight inflation.

UAlbany faculty experts are available to discuss numerous issues related to financial markets, the U.S. economy and the global economic impact.

Faculty experts include:

Kevin Bronner: A professor at the University of Albany since 1997, Bronner has taught courses in microeconomics, governmental accounting, regulatory administration, public finance, public budgeting and strategic planning. As principal utility financial analyst with the New York State Public Service Commission from 1970-2003, he has been involved with auditing large electric and gas companies, including audits of issues associated with Enron-type problems. He’s worked with the staff of the Securities and Exchange Commission on compliance audits, and analyzed complex mergers, and financings and derivatives transactions for utilities.

Kajal Lahiri, distinguished professor, Economics and Health Policy, Management and Behavior: Lahiri, who joined UAlbany in 1976 and was named distinguished professor in 2005, specializes in econometrics, forecasting and the economics of health. His work has been supported by the National Science Foundation, the World Bank, NY State Division of BudgSet, International Monetary Fund, Social Security Administration, US Department of Transportation, and the National Institutes of Health. He teaches economic statistics, forecasting, econometrics and applied econometrics.

Greg Nowell, associate professor, Political Science, International Affairs: Nowell’s research interests include the political economy of the oil market, economic regulation and technological transformation. He is author of Mercantile States and the World Oil Cartel (Cornell University Press 1994). Nowell is particularly interested in the banking and money sector of the pre-capitalist periods as well as the use of Keynesian economics in the industrial capitalist and advanced industrial capitalist periods.

About the University at Albany:

 A comprehensive public research university, the University at Albany-SUNY offers more than 120 undergraduate majors and minors and 125 master's, doctoral and graduate certificate programs. As a Carnegie-classified R1 institution, signifying the highest level of doctoral and research activity, UAlbany is a leader among New York colleges and universities in diverse fields like atmospheric and environmental sciences, business, education, public health, health sciences, criminal justice, emergency preparedness, engineering and applied sciences, informatics, public administration, social welfare and sociology, taught by an extensive roster of faculty experts. It also offers expanded academic and research opportunities for students through an affiliation with Albany Law School. With a curriculum enhanced by 600 study-abroad opportunities, UAlbany launches great careers.

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