Has the banking crisis already come or is it still at risk of spreading globally? Can the meltdown started in the US still become systemic, or are we witnessing a general distrust?
Banking crisis and financial turbulence: where are we now?
The questions remain in the foreground, despite the Stock Exchanges indicating a return to a cautious tranquility. The point is that investor confidence in the banking sector has remained fragile and Europe itself, repeatedly called out of the danger of the instability trap, is under observation.
Not surprisingly, the ECB through its supervisory chief Enria stated that the recent financial defeat highlighted the need for greater regulatory control on some aspects. In the US, top bank regulators are about to assure Congress that the overall financial system remains on solid footing after recent bank failures, but will revise their policies in an effort to prevent future collapses.
Now, facing some volatility, analysts are wondering whether the market is being driven by sentiment rather than fundamentals when it comes to pricing in fears of a systemic banking crisis.
Global banking crisis: will it come or is it a bluff?
Sara Devereux of the asset management giant Vanguard released some considerations on what is happening: “The current crisis is not like that of Lehman Brothers. Banks have had risk management issues with traditional businesses. The rapidly rising rates have exposed these weaknesses. Banks were forced to become sellers, realizing losses after their bond investments were well below face value”.
The expert’s suggestion is that SVB and Credit Suisse could still be standing today if they hadn’t lost the confidence of their clients, as evidenced by massive deposit outflows from both banks in the last months.
“It was more of a ‘sentimental contagion’ rather than the systemic one we saw during the global financial crisis. Economists believe the damage has been largely contained, thanks to swift action by federal agencies and other banks,” he added.
This point of view is also shared by Citi, which concluded that, in the absence of a clear explanation for last Friday’s moves - a black day in Europe - what we are seeing is a "irrational market".
The fall in the price of Deutsche Bank shares, which fell as much as 13% on Friday, could be one example. The bank launched a huge restructuring effort in 2019 and has since posted 10 consecutive quarters of profit. Shares rallied 6.2% on Monday to close above 9 euros ($9.73) per share.
There was speculation that the decline may have been driven by Deutsche’s exposure to US commercial real estate or a Department of Justice (DoJ) inquiry to a number of banks in relation to Russian sanctions, but Citi joined the chorus. of market analysts concluding that these were insufficient to explain the crash.
“As we have seen with Credit Suisse, the risk is that there is a psychological impact on depositors”, is the conclusion of several analysts.
Trust in banks is collapsing
The trust issue is important. Medium-sized US creditors are trying to hang on to customer deposits after recent bank failures triggered a $119 billion exodus from small institutions.
At a banking conference in Las Vegas on Monday, industry executives discussed strategies to boost customer confidence, with higher deposit rates being the most common suggestion.
While effective in the short term, other measures could prove more effective in the long run, some delegates said.
“Trust doesn’t necessarily come from the size of a bank, but more from its profitability and community relationships”, said Angela Conti, general manager for retail deposits and payments at USAA Federal Savings Bank.
Also because the cracks on the sentiment towards the solidity of the banks could also widen in Europe. Andrea Enria of the ECB said there is concern about the amount of nervousness and unease perceived by markets and investors. “There are markets, such as the credit default swap market, which are very opaque, very superficial and very illiquid - and with a few million (of euros) fear spreads to the banks by trillions of euros and contaminates the prices of shares and outflows from deposits”.
Original article published on Money.it Italy 2023-03-28 15:43:54. Original title: Una crisi bancaria mondiale è in arrivo o no?
