Are Banks Safe?

America has recently shut and sold three banks and Europe has seen Credit Suisse taken over by UBS, but is this cause for concern? The American banks have been shut since the start of March and cases like this haven’t been seen since the 2008 financial crisis. According to politicians and central banks, there is nothing to fear.

After bank customers became worried about the safety of their funds, they withdrew them and essentially collapsed the businesses they’d been banking with. In response, central banks provided quantitative easing to ensure there was enough money available for business to continue as it had. Essentially, the same decisions as the last financial crisis were made to make sure customers could still withdraw their money.

In recent weeks, some of these measures have been scaled back because consumer confidence has started to increase again. The question on everyone’s lips, however, is whether UK banks will suffer the same fate. According to the Treasury, there is nothing to worry about in the UK, as the American banks were only a cause for concern for American authorities.

The other reason why so many banks have collapsed has been down to the hiking of interest rates as a measure to slow down price rises. Silicon Valley Bank sent out initial warning signs in March when it confessed a need for more funds. The chain reaction of panic moved over to Signature Bank and then First Republic, which all closed within the same month.

Credit Suisse was a bit more complicated, having a poor track record of risk management. Not only this, but several scandals and money laundering cases gave the bank a substantial loss in revenue. Customers were still worried about their funds, even after the Swiss National Bank bailed them out with £41 billion.

The good news is, without having millions in the bank, you don’t have anything to worry about. UK banks usually have a safe track record in lending money, which is why it’s extremely unlikely that anything similar will happen. In the UK, deposit protection keeps funds safe if a bank were to go under. £85,000 per individual is safe per bank, or £170,000 in a joint account. Similar financial protection exists in the EU and America.

HSBC rescued Silicon Valley Bank in a £10 billion deal. The bank has assured the UK that poor risk management was involved in America, which is why so many banks went under in such little time. JP Morgan did a similar deal with First Republic, also downplaying the effects felt in America. According to Noel Quinn, Chief Executive of HSBC, these failures and collapses only came after banks took on bigger risks with the possibility of better profits.

Revenue for HSBC has recently tripled to $12.9 billion in the first quarter of 2023. $1.5 billion of this was attributed to the buyout of SVB for £1 in the beginning of March. The bank’s share price increased almost 6% recently after recent buyouts and deals. If anything, reassuring signs can be seen throughout the UK banking sector.