Risk Assessment of Banks under Fed Rate Hikes

Abstract

The global economy was hit after the start of the COVID-19 pandemic. Economic stagnation and high volatility in commodity prices also had a negative impact on global supply chains. The Federal Reserve, in an effort to prevent a repeat of the 2008 financial crisis, slow down inflation, increase the liquidity of money, prevent asset value bubbles, and further revive and stabilize the economy, adopted a policy of raising interest rates, gradually increasing the federal funds rate to between 5.25 and 5.5 per cent over a two-year period. This change, however, also led to many changes in the banking sector. Commercial banks are trying to find ways to avoid risks while maintaining their returns in the face of financial market changes. This paper analyzes the systemic risk of commercial banks through liquidity risk, credit risk and market risk with the cases of Silicon Valley Bank, Signature Bank and Credit Suisse Bank. Through the analysis, this paper finds that commercial banks suffer from systemic risk, often reflecting their own operational problems, which ultimately led to bankruptcy or acquisition of the end.