Bank failures made in America damage the entire world

The bank failures in the United States and Europe have triggered a debate on the causes and consequences of the banking crisis. The crisis has also prompted some populist social media to claim that "tons of dollars" are fleeing to Hong Kong. Obviously, the Hong Kong banking industry has firmly denied any such abnormality has happened.

The root cause of the banking crisis is the frequent interest rate hikes by the US Federal Reserve. The sharp rate hikes in the short term significantly increased the commercial banks' liabilities, which had a negative impact on bond prices that account for a relatively high percentage of the banks' assets. That, for the failed banks, was the last straw that broke the camel's back.

For banks, especially small and medium-sized ones, the rapid depreciation of bond prices can be devastating, because they may not have enough capital to absorb the losses and may be forced to declare bankruptcy. A recent study shows that the devaluation of US bonds due to rate hikes has cost the US banking system more than $2.2 trillion in bond market value. In addition to the Silvergate Bank, Silicon Valley Bank and the Signature Bank, at least 186 other small and medium-sized banks could face bankruptcy.