50 US banks may go bankrupt if structural problems in banking sector are ignored, former senior Lehman Brothers official warns

Washington: Former Lehman Brothers official has warned that more than 50 banks in the US are likely to face bankruptcy if the structural problems are not addressed. Lehman Brothers, one of the largest banks in the US, collapsed in 2008, which triggered a worldwide economic recession. Lawrence McDonald, a former executive of Lehman Brothers, has warned that the looming crisis in the banking sector is bigger than in 2008.

Three US banks have filed for insolvency in just one week. Silicon Valley Bank’s (SVB) failure is considered the biggest collapse since 2008. Silvergate and Signature Bank collapse has caused severe repercussions in the banking sector in the US. First Republic bank is under stress despite receiving aid from other banks. Account holders and shareholders have withdrawn over 80 billion dollars from this bank.

The repercussions of the banking crisis in the US are beginning to emerge on the global stage. A massive fall in global banking equity has been observed, which has been claimed to be just the beginning of a bigger crisis to follow. It validates the claims made by the former senior executive of Lehman Brothers. In 2008, the collapse of the Lehman Brothers impacted other big financial companies. Presently the regional US banks are under stress due to increasing interest rates. Billions of dollars flow from small banks to bigger banks. If there are no immediate reforms, more than 50 banks may go bankrupt, Lawrence McDonald warned.

At this time, McDonald also aimed at Federal Reserve policies. McDonald claimed that the Federal Reserve and its heads were unaware of the threats posed to banks. He recommended that the Federal Reserve immediately roll back the interest rate hike. At the same time, increase the security limit for funds in the banks. The US government should provide complete security for the bank funds and a bailout.

A few days ago, a report released by a US economist drew attention to the threats to the banking sector in the country. The report warned that 200 banks in the US are on the brink of crisis, and account holders and other customers may lose as much as 300 billion dollars. Meanwhile, US Treasury Secretary Janet Yellen, acknowledging the financial crisis faced by the small banks in the US, has stated that financial assistance will be provided to other banks if needed.

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