Fears of a global banking meltdown were one reason the stock market fell 634 points on Monday. A realization that the crisis is not imminent helped revive the stock market, which closed Friday with a gain on the Dow Jones Industrial Average of 125.71, after rallying for 423 points on Thursday. The stock market was lower for the third consecutive week.
But can another meltdown – this time made in Europe – happen?
Anything is possible, particularly after the US banking system survived the 2008 financial crisis only after receiving hundreds of billions of dollars of loans from the US government, say economists. But they also note that the US banking system is now stronger than it was two years ago and that regulators are more vigilant.
“The Federal Reserve would assist any bank unable to get the necessary financing through the marketplace,” says Nigel Gault, chief US economist for IHS Global Insight in Lexington, Mass. “They have the ability to reactivate the emergency liquidity schemes used during the last downturn.”
At the moment, Mr. Gault and other economists say, the markets are still providing the European banks with cash for their daily needs.