The global banking crisis and world economy

Banks like SVB take in short-term deposits and use the deposits to make long-term investments. – Reuters

THE banking crisis that hit Silicon Valley Bank (SVB) earlier this month has spread. We recall with a shudder two recent financial contagions: The 1997 Asian Financial Crisis, which led to a deep Asian recession, and the 2008 Great Recession, which led to a global downturn.

The new banking crisis hits a world economy already disrupted by pandemic, war, sanctions, geopolitical tensions, and climate shocks. At the root of the current banking crisis is the tightening of monetary conditions by the United States Federal Reserve and the European Central Bank (ECB) after years of expansionary monetary policy.