The U.S. Banking Crisis of 2023 and Its Implications for Africa

This Policy Brief examines the current banking crisis in the United States and its implications for Africa. Many studies have pointed out the main factors responsible for this crisis, including poor risk-management practices in the failed banks, the sector’s weak regulatory structure, and the failure of bank supervisors. However, a key factor that has contributed to the extent and speed of the crisis is the U.S. Federal Reserve’s (Fed) policy actions, including the elimination of reserve requirements in 2020, which resulted in a surge in demand deposits, and led to banks taking excessive risks. Although this crisis will prompt the Fed to exercise more caution in raising interest rates, it will not change its commitment to bring inflation down. In the next two years, developing countries, particularly those in Africa, should anticipate a challenging environment characterized by high interest rates and reduced demand for their exports, because of sluggish growth in major trading partners. In the meantime, these countries can learn valuable lessons from the 2023 banking crisis in order to mitigate the potential risks of bank runs.