The total number of banks that collapsed in the US during the current year till date is 33, and this is as against 25 during the year 2008.These include the so called once biggest and mightiest banks of the world. It has become the order of the day to blame the economic slow down and recession for bank failures. However a deeper analysis indicate that the economic slow down, depression, recession, inflation, growth, stagnation and deflation are all part of the business cycle that occurs at irregular intervals depending upon a multitude of factors including the various policies pursed by the governments and the world economy. This kind of situation had happened earlier and will happen in future also.
The present situation of a global economic crisis is itself triggered by the bank failures which are man made as a result of indiscretions of the US banking system and the lack of supervisory controls by the regulator, namely, Federal Reserve. Stringent regulatory measures and proactive supervisory review process, especially when the banks were following the economic capital model of BASEL II guidelines for maintaining capital adequacy has resulted in the crisis. It looks like the US has lot to learn from the Indian regulators, the Reserve Bank of India, who didn’t buckle down at any point of time, be it the dictates of the IMF or the developed economies. This is seen clearly by how India has at all times controlled its economy by avoiding such disaster, as compared to other Asian countries who had opened up their economies by allowing capital account convertibility , thus becoming sitting ducks to the vagaries and whims of the capitalists from developed economies. The cautious approach of the RBI and the watch dog attitude of this strong supervisor have kept Indian banks out of such disasters and the Fed has a lot to learn from its counter part in India how to supervise the banks in the changed circumstances.
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