How An Emerging Banking Crisis Could Affect Your Job

Banking crises create a snowball effect that results in high-interest rates, slow economic movement, and decreased investments, further resulting in people getting let go from their jobs.

By Iqra Butt | Published

Banking crisis

After the collapse of many banks, credit conditions, mortgages, and employment are all being affected. Following the demise of Silvergate Bank, Silicon Valley Bank, and Signature Bank, all in March 2023, concerns over the economy are looming. Now due to the banking crisis, experts expect unemployment rates to be up again.

The banking crisis, in short, is when banks lack liquidity and eventually collapse due to being below the market value of their liabilities. Liabilities include creditors and depositors. In the case of the Silicon Valley Bank (SVB) collapse, many customers were withdrawing their deposits so much that it resulted in SVB not being able to pay customers out in cash. 

Since then, more banks have collapsed, causing shifts in the economy and predicted rising interest rates. According to the Federal Reserve Economic Data, we are currently at an interest rate of 4.83 percent. The predicted rate after the banking crisis for April is at about 5 percent.

When the Federal Reserve increases interest rates, it can have harsh effects on the economy. It becomes more expensive for businesses to borrow money. This results in decreased investment and slower economic growth.

Higher interest rates can also make it more expensive for consumers to borrow money. Lessened buying power leads to decreased consumer spending and decreased demand for goods and services. Consequently, businesses scale back operations resulting in layoffs similar to what we see now.

The current employment rate is 3.6 percent, according to CNN Business. The Feds have predicted that the rate will rise to 4.5 percent which means an additional 1.5 million people would be unemployed by the end of the year, says CNN Business. This is grounds for concern for many people.

The banking crisis and failures also have significant impacts on the economy. When a bank fails, businesses will likely decrease investment. To cut back, banks may lay off employees, and businesses that rely on bank financing will struggle to find alternative sources of funding. 

The failure of a bank can cause a snowball effect. A single failure harms the faith people and businesses have in the system as a whole, further worsening the banking crisis. This can create a vicious cycle of bank failures and economic contraction, leading to significant job losses.

The combined impact of interest rate increases and bank failures on job loss can be particularly severe because their negative effects can compound each other. The result is an economic downturn that would instill lasting negative impacts. Businesses cut back on production and delay hiring new employees, which we’ve seen in not just the finance industry but also the technology sector.

The United States Federal Reserve is trying to balance price stability, unemployment, and restoring financial stability by increasing interest rates. This is predicted to spell the loss of over one million American jobs. This figure is based on an assumption that the US unemployment rate will rise from 3.6 percent to 4.5 percent by the end of the year.