What lesson can be learned from the recent bank failures in the US?

Question

(a) Interest rates move in cycles and all banking is fundamentally predicated on managing the risks associated with interest rate moves.

(b) Depositors in failing banks should always be protected by the regulators.

(c) The failure of one bank can cause a global financial crisis.

(d) The Reserve Bank of India's guidelines have failed to protect Indian banks from interest rate risks.

Answer 1

Answer: (a) Interest rates move in cycles and all banking is fundamentally predicated on managing the risks associated with interest rate moves.

 

Explanation: The blaming the Fed's monetary tightening as the proximate cause for the bank failures is a case of being unable to see the wood for the trees, and that all banking is fundamentally predicated on managing the risks associated with interest rate moves. Therefore, option (a) is correct.