Explainer: are we in a banking crisis?
The speed of the demise of US bank SVB and then Credit Suisse in Europe has spooked bank investors and customers who are wondering if there are undisclosed financial weaknesses at their banks. So, what is going on and what happens next?
Opinions diverge on this question.
The California-based Silicon Valley Bank is the biggest US bank collapse since 2008, and Credit Suisse has joined financial crisis peers such as Bear Stearns that were sold at fire-sale prices.
AMP chief economist Shane Oliver says that while the bank failures do not look like a rerun of the financial crisis, they do represent contagion risks.
Investors have been selling down regional US banks, in particular, over concerns they might have balance sheets that resemble SVB’s finances.
But other parts of the market, including US tech stocks, have held up well during a volatile few weeks, indicating some investors expect the threat of a banking crisis to subside.
It is clear, however, that the speed of the demise of SVB, and then Credit Suisse, has spooked bank investors and customers.
The swift share price movements, and ability of customers to quickly pull their deposits, has been attributed in part to social media and its ability to disseminate information quickly.
It took just 48 hours between the time SVB disclosed that it had sold its bond portfolio at a loss and its collapse.
In the case of Credit Suisse, it received an emergency loan from Switzerland’s central bank last week, which initially soothed the market. By the weekend, it needed to be saved.
Several central banks have announced a strategy to keep money flowing through the global economy to help ward off the sort of credit crunch that gripped markets during the financial crisis.
The initiative, led by
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