However, drawing from the “lessons” of the previous crises as well as the effective response of the US and European authorities, the risk of a global banking crisis has been gradually prevented.
After several US banks fell into crisis, European banks were very concerned about the risk of a “domino effect” spreading to the Old Continent. According to Reuters, at least two major European banks are considering contagion failure scenarios following the collapse of two banks in the US and Credit Suisse in Switzerland.
Reuters did not name the two European banks but revealed that senior leaders of the two banks said they had internal discussions about whether the European Central Bank (ECB) should consider to support banks in the region soon, especially in capital and liquidity issues. Executives said their banks and the European banking system both had good capitalisation and liquidity, but they fear the current crisis of confidence in the banking industry could affect many banks regarding lending.
Financial officials in Europe and the US are also concerned that the spreading banking crisis will “shadow” the economic outlook for the region. In Europe, companies still largely rely on bank loans to drive business growth, and this means that the economy is really sensitive to banking activity. The ECB said it is monitoring market tensions and will react as necessary to maintain financial stability in the Eurozone.
In the US, concerns about the banking crisis “hindering” economic recovery are growing. Former Goldman Sachs CEO Lloyd Blankfein said that the recent collapse of some banks in the US will accelerate the process of credit tightening in general and slow down the progress of the largest economy in the world.
In an interview with CNN, Blankfein said that in many respects the current situation will surely be similar to raising interest rates. In the new context, banks will lend less, so there will be less credit, and less credit will mean “deceleration” of economic growth.
US President Joe Biden recently said that the banking crisis has cooled down, he also reassured people that their deposits will be safe. However, analysts said that the consequences of the banking crisis on the US economy will last for a long time.
The failure of some US banks in recent days has raised concerns about the “ghost” of a crisis threatening the global economy. However, the timely actions of the US and Western countries and the analysis of experts showed that this banking crisis is worrying, but not as serious as the banking crisis that sparked the 2008 global financial crisis. The Fed and a series of central banks of Canada, the United Kingdom, Japan, the EU and Switzerland have announced a special coordination mechanism to improve liquidity accessibility of banks.
The move has helped to defuse panic attacks that have rattled the global financial system. In a joint statement, the abovementioned central banks said that to improve the efficiency of currency swaps in USD, they haveagreed to implement seven-day maturity on a daily basis instead of weekly as it is now. This measure will give non-US central banks more access to USD.
In addition, the announcement of the largest Swiss bank UBS agreeing to buy Credit Suisse for 3.25 billion USD, also helped alleviate the market's anxiety about the risk of banking system breakdown in Europe. This is the reason why UBS's acquisition of Credit Suisse has received acclaim from the international community. Credit Suisse, which is 167 years old and the second largest bank in Switzerland, was previously under pressure after the collapse of two banks in the US, Silicon Valley Bank (SVB) and Signature Bank (SB).
Michael Every, global strategist at Rabobank, said that there won't be any reoccurrence of the global financial crisis. He asserted that the 2008 crisis scenario will not repeat for a very obvious reason, which is that banks in general have much better capital investment whilecredit quality is not problematic.
Some economic experts even said that, for developing economies in Asia, the current banking crisis may be an opportunity to increase foreign exchange reserves and reduce interest rates. In addition, this should also be considered a valuable “warning bell” to help central banks review and reform their banking system to improve resilience to external shocks and avoid worse crises in the future.
