US Banks Adopt the African Model

The banks, instead of offering essential loans for working capital, predominantly invest in their government’s sovereign debt. This observation was made repeatedly by the CEO of a public company in Africa, where banks in emerging markets focus on investing in government debt rather than lending to businesses or individuals. This practice results in banks essentially serving as funding tools for the State, rather than fulfilling their traditional banking role. In the U.S., a similar trend is emerging, with banks increasingly investing in U.S. Treasury and agency securities instead of extending private credit. This shift is attributed to regulatory changes that incentivize investing in government securities over traditional banking activities. As a consequence, the banking system may struggle to support economic growth, especially amidst increasing government debt and deficit spending. The reliance on government securities poses risks for both the banks and the economy, potentially leading to stagflation in the future. Please rewrite this sentence.

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