Difference-in-Differences

In the Spring of 2023, the swift collapse of Silicon Valley Bank, the second-largest bank failure in the United States, sparked concerns of a global banking crisis. As the ripple effects of the risk spread across the world, banking stocks plummeted, instilling fears in the financial system. Haunted by the aftermath of the 2008 financial crisis, where about 500 banks collapsed, President Biden reassured American investors and depositors within hours of the Silicon Valley Bank failure, stating, “Let me repeat that: No losses will be borne by the taxpayers” (NYT, 14th March). The bailouts under President Bush and Obama may have softened the global Great Recession in 2008, but they also ignited a widespread backlash, such as Occupy Wall Street movement in the United States, which arguably fueled populist politics. President Biden’s prompt response likely drew upon lessons learned from the 2008 crisis and the Great Depression of the 1930s, which tested policymakers’ ability to manage banking panics. Regardless of the structural similarities or differences in the origins of the crisis, the policy response aimed to stem financial collapse and restore depositor confidence. The groundwork had already been laid in the 1930s for enthusiasts of causal inference to examine whether the Bagehot rule, advocating swift liquidity support and confidence building measures, or a policy of nonintervention would effectively stabilize banks and restore trust among depositors and investors.