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Post: How secure is the banking system now?


After the banking crisis in the USA and Switzerland, the first shock is over. However, there are still open questions. After this turbulence, it keeps auditors, politicians and banks busy.

Auditors and politicians responded quickly and decisively to the latest problems in the banking sector. Have the risks of a rapid return in interest rates in the US and euro zone been underestimated?

In the US, the turmoil is now being addressed politically: After a hearing on the Senate Banking Committee on Tuesday, representatives of the US Federal Reserve and US deposit insurance company FDIC and others must answer questions from US lawmakers. House of Representatives on Wednesday.

Banking crisis: What has happened so far?

The quake began in early March with US banks, previously relatively unknown to the general public: Within days, California’s Silicon Valley Bank (SVB) lost the confidence of investors and customers, and on March 10, the US deposit insurance company FDIC took control and closed the institute specializing in startup finance. Meanwhile, American First Citizens Bank took over assets in the form of deposits and loans from the collapsing institution.

Other small money houses in the US stumbled, Signature Bank collapsed. Share prices of banks around the world came under pressure, with previously offended Swiss bank Credit Suisse bailed out in mid-March through an emergency sale to UBS.

Has a global banking crisis been averted?

“The risks in the financial system are still very high,” said José Manuel Campa, head of the EU Banking Authority (EBA), in an interview with “Handelsblatt” earlier this week.

In addition, rising interest rates are putting pressure on financial markets. Such a sharp turn in interest rates increases banks’ earnings opportunities as well as increases risks.

José Manuel Campa, EU Banking Supervision

However, Campa said he is “relatively satisfied with the situation in which banks in the EU are on average.”

The German Council of Economists currently considers a major banking crisis unlikely as a result of turbulence in the US and Switzerland. “We would like to point out that we do not currently see any threat to the stability of financial markets,” said “Wirtschaftsweise” Ulrike Malmendier, presenting her latest economic forecast by the Federal Government’s advisory body on March 22. The situation is different from the 2008 financial crisis.

Raimund Röseler, chief bank auditor of the financial supervisory agency Bafin, expressed his view on the German banking market particularly relaxed:

Of course we have problems with some German banks, but we do not have a problem with the banking sector.

Raimund Roseler, Bafin

“Honestly, he doesn’t see the danger of a systemic crisis or that what happens there will escalate into a systemic crisis here.”

How safe are depositors’ deposits?

In mid-March, Chancellor Olaf Scholz put it simply: “German depositors’ deposits are safe.”

The fact is: in every member state of the European Union (EU), national deposit insurance systems guarantee up to 100,000 Euros per bank per customer. In addition to this legal protection, almost all financial institutions in Germany also protect savings deposits.

The deposit protection fund of the German Banks Association (BdB) is available for private banks. According to the association, a minimum deposit of 750,000 Euros per bank is currently maintained per customer. There are comparable arrangements for savings banks and cooperative banks.

How are central banks reacting?

Problems in the financial sector come at a bad time for central banks, which stand in the way of their fight against high inflation. However, both the US Federal Reserve and the European Central Bank (ECB) point out that they can solve inflation and banking problems separately. Concretely: Increases in interest rates should help counter high inflation while banks receive adequate funding.

Not all experts share this view: Central banks need to understand that monetary policy and financial stability are inseparable, says Erik Nielsen, chief adviser and one time chief economist at big bank Unicredit. It is not in vain that the rapid and sharp rise in basic interest rates is seen as a major cause of financial problems for many US banks.

What are the economic consequences of the crisis?

Concrete results are not yet fully predictable. But many experts warn of the negative effects: “Although the immediate crisis in the banking sector seems to be easing, it is not yet clear how much turbulence will hurt economic confidence,” explains British analyst Capital Economics.

The biggest risk is that banks will reduce their loans. This will reduce investment and consumption and ultimately hurt the economy.

Source: ZDF

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