We share this document from NYU Stern Business School.
The essay discusses the banking stress that occurred in 2023, its underlying causes, provides insights into the consequences of the banking stress and offers suggestions for preventing similar situations in the future.
Some banks faced trouble due to a combination of large capital shortages and a significant share of uninsured deposits, leading to potential losses for uninsured depositors and a system-wide run risk. The macroeconomic causes, including fiscal and monetary policies after the pandemic, contributed to increased risk-taking by banks. The failure of certain banks highlights the need for regulatory reforms, including strengthening supervision, revising deposit insurance, and enhancing banks’ capacity to absorb losses.