UNCW economics expert explains bank failures, possible recession

WILMINGTON, N.C. (WECT) - Two of the largest bank failures in United States history have happened since last Friday, with Silicon Valley Bank and Signature Bank each collapsing.

The federal government has stepped in to make sure depositors will be able to access their money, but questions remain if this short trend of bank closures continues to happen.

Dr. Adam Jones, chairman of the Economics and Finance Department at UNC Wilmington, says the banks likely could not keep up with rising interest rates.

“If the bank took too much risk or went too far out, then this unusually-fast run-up in interest rates has really hurt the value of those securities, and that’s what got [Silicon Valley Bank],” said Jones.

While the largest bank failure in U.S. history happened amid the 2008 financial crisis, Jones says another recession might not be as close as some people think.

“This is the most highly anticipated and predicted recession that hasn’t happened yet,” Jones said.

Jones adds that pandemic spending habits led to inflation, which has resulted in the federal government needing to raise interest rates for borrowers to slow that spending and thus, bringing down inflation.

“We all as a society went out and bought lots of homes and lots of stuff,” said Jones. “And that caused the price of homes to go up and that caused inflation to take off. Well, as those programs are being unwound, the fed is trying to tamp down inflation, so they’re raising interest rates, trying to slow spending, and get us back on a normal path again.”

He notes, however, that Americans are still spending money, which is keeping a recession at bay.

“Consumer expenditures have slowed, but remain fairly strong,” Jones said. “The labor market remains tight, there’s still jobs available, we’re still creating jobs. The unemployment rate remains at record-low levels. So, if there’s going to be a recession, it’s still a little ways off.”

Jones notes that bank deposits of less than $250,000 are insured by the FDIC, meaning the average American does not have to worry about losing their money if a bank shuts down.

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