With the traditional banking system struggling to survive the prevailing economic conditions, there are fears that more banks could possibly fail.
Conventional Banking Systems Deteriorate
Moody, a well-known credit rating agency that evaluates Banks’ financial health recently changed its attitude towards the banking system in the US.
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With the latest letdowns in the form of Silvergate Bank, Silicon Valley Bank, and Signature Bank, Moody has now taken a negative view.
Earlier the crediting rating firm was positive that the banking system was stable, however, it is now of a contrary opinion.
Given the current financial situation, regulators have stepped in to take control of the situation and prevent any further setbacks.
They are devising ways that would support the depositors and organizations that have been impacted by the financial unrest.
Although Moody downgraded the credit ratings of some financial institutions, their stocks went up. On the bank exchange, SPDR stocks rose by approximately 6.5% in the first half of the trading results.
What Led to the Complexed Banking System
According to Moody the prolonged phase of low-interest rates coupled with COVID-related economic stimulus measures have led to complications in the banking system.
Banks that hold a large number of securities that have decreased in value are at a risk. Additionally also are exposed to potential risks to the banks that hold deposits from uninsured non-retail US customers.
As per Moody, the US is going to face more recession by the end of the current year. More recession is only going to further tense the situation for the financial markets.
The latest downgrade makes it clear that conventional banking models are finding it hard to meet the challenges of the world as it stands today. The pandemic has changed a lot for the economies and financial industry.
The rise in interest rates will only result in more vulnerable depositors and a loss of faith in the banking system.
The growing confidence in cryptocurrency
It is in times like these that confidence in cryptocurrency is incessantly increasing. Crypto supporters are boasting about the fact that it is times like these for which tokens like Bitcoin were created.
If one goes back in time to 2008, the world was taken over by a global financial crisis. What started in the US because of the collapse of the housing market, spread all across the world and things only deteriorated.
Tough times called for innovative measures and thus from this financial crisis Bitcoin took its inspiration. 2009 Bitcoin was created and its first transaction was made early in 2009.
Similarly now, given the tense market conditions, there is significant reliance on Bitcoin and other crypto tokens. As a result Bitcoin even broke its own record of $26,000 in June last year.
Crypto followers are boasting about their futuristic thinking and are using the digital asset as an alternative to fiat currency.
This has also increased the activity of crypto trading platforms as opposed to conventional banking systems. People are correlating the sudden rise of the value of Bitcoin to the current fragile traditional banking system.
Overall there is instability across the financial world and in such times reliance on cryptocurrency is on the rise.
The conventional banking system functions in a manner that no longer guarantees the safety of the funds of the depositors.
Banks lend out the deposited money and use it to buy volatile assets, which puts the depositors at risk.
Crypto tokens and blockchain-related finance are seen by technology devotees as a safer and more transparent way to manage financial transactions.
It won’t be incorrect to believe that technology can provide a secure and efficient financial system.
Such a system can help mitigate the potential risks associated with traditional banking and give people greater control over their finances.