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Lessons for the RBI from the US review of its 2023 bank failures

In March 2023, the world financial markets were rocked by the failure of three US-based banks: Silicon Valley Bank, Signature Bank and Silvergate Bank. The 2023 bank failures evoked memories of the 2008 crisis when a spate of bank failures in the US led to the Global Financial Crisis. Some suggested that the crisis was similar to the 1980s when several savings and loan associations failed as interest rates rose sharply.

The 2023 crisis once again pointed fingers towards the regulators of the US banking system. Unlike most countries, the regulation and supervision of the US banking system are highly fragmented. In the US, a bank could be chartered either at a national level or at a state level. Accordingly, there are regulators at both the federal and state level. At the federal level, there are four regulators: Federal Reserve, Federal Deposit Insurance Corporation (FDIC), Office of Comptroller of Currency and National Credit Union Administration (NCUA). Banks can decide whether they wish to be a member of the Federal Reserve system, FDIC, OCC, etc and accordingly organise themselves.

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