The collapse of three banks on three different continents indicates a new global crisis is brewing. But it may also show that the last one never really ended and the tools used to manage the global economy simply don’t work.
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US Bank Fails for the First Time Since 2017
More than 10 years have passed since the collapse of Lehman Brothers, which burned almost $10 trillion in market capitalization in global equities within a month. Back then, it was determined that banks, large and small, had gotten themselves into trouble with mortgage-backed securities, the price of which turned out to be significantly overestimated.
Now, following waves of quantitative easing and huge bailouts for those deemed “too big to fail,” indications have emerged that the traditional banking system is heading towards its next big disaster. The main question that remains to be answered is what the trigger will be.
Analysts have warned it may be the record high level of global debt currently standing at well over $240 trillion, which is three times the size of the global economy. Others are pointing to China’s deeply indebted financial system. Europe’s banking sector, as deleveraged as it may seem, still has its unresolved issues, especially acute and chronic in some countries of its southern flank.
When America sneezes, however, the world usually catches cold, as the saying goes. This year, the U.S. registered its first bank failure since 2017. On the last day of May, the Texas Department of Banking closed Enloe State Bank. The Federal Deposit Insurance Corporation (FDIC) then took steps to arrange the assumption of the bank’s insured deposits by Legend Bank, N.A.
