US banking turmoil could slow global economy; James Bullard’s optimistic take on bank stress By James Christie
Good day. The domino effects of the tensions in the US financial system could lead to a credit crunch, leading to a more severe global economic slowdown, many economists say. This marks a turnaround in sentiment from earlier in the year, when data showed surprising strength in western economies, and the start of a rebound in China after Beijing abandoned its zero-tolerance approach to Covid-19. A credit crunch coupled with rising interest rates could suppress demand for other countries’ goods and services, such as German cars, French holidays, or Chinese-made electronics. However, tensions in the US banking system could result in lower interest rates, which could ultimately boost the economy, according to James Bullard, president of the Federal Reserve Bank of St. Louis. “Financial stress can be distressing, but it also tends to drive interest rates down,” he said on Friday. “Lower interest rates, in turn, tend to be a positive factor for the macro economy.”
Now for today’s news and analysis.
Top News Bank failures in the US pose a risk to global growth
The turmoil in the US banking sector is not only a problem for the US, it also increases the risks of a global recession.
Many economists were expecting a sharp slowdown in global economic growth this year, even before US lender Silicon Valley Bank collapsed, on expectations of a slowdown in spending and investment in the US and Europe amid rising interest rates.
Those concerns eased somewhat earlier in the year, but now some pessimism is creeping back. Although economists generally believe a full-blown financial crisis is not likely, they also see heightened risks to global growth from a shattered banking sector and the specter of a credit crunch.
St. Louis Fed’s Bullard: Bank stress doesn’t have to derail the economy
Federal Reserve Bank of St. Louis President James Bullard said Friday that measures of financial stress are much lower than during the 2007-08 financial crisis and the early days of the pandemic.
Fed’s Barkin: High inflation as a case for rate hikes “pretty clear”
Richmond Fed President Thomas Barkin told CNN on Friday that stubbornly high US inflation justifies the Federal Reserve’s move to hike rates again despite the turmoil in the banking system.
How banking regulators failed: The economy changed, regulators didn’t
Interviews with past and current regulators and auditors, bankers and those associated with Silicon Valley Bank and Signature Bank indicate rapid changes in the economy and regulators that have been slow, if at all, to adapt to these changes.
First Citizens Acquires Majority of Failed Silicon Valley Bank Where the Financial Risk Lies, in 12 Charts What’s Happening at Deutsche Bank? Bank lending from Fed discount window hits record high First Republic Bank founders and family members earned big salary FDIC takeover veteran tells what it’s like running a failed bank debt that’s more expensive and harder for startups to come by after the SVB collapse Saudi Credit Suisse Chairman Biggest Investor Resigns From US Economy Economy this week: Focus on household spending and home prices
The Commerce Department is due to release figures on US household spending and income on Friday, along with the personal consumption price index, a measure of inflation closely monitored by the Federal Reserve.
Accounting Fraud Indicator Signals Coming Economic Trouble
Corporate America’s profit manipulation is on the rise, according to new accounting fraud investigations, which use a technique that Enron labeled as a profit manipulator several years before its 2001 implosion.
The era of working from home is ending for millions of Americans
According to a Labor Department report released this week, 72.5% of companies said their employees have rarely or not at all telecommuted in the past year. That number increased from 60.1% in 2021.
Important developments around the world Banking crises and inflation threaten global economic recovery
Business surveys released on Friday saw an uptick in activity in the US and Europe, driven by service providers. Japan saw a similar acceleration, helped by the arrival of tourists from China following the lifting of Covid-19 restrictions.
Ukraine’s allies see a way for the war to end, but have no plan to achieve it
Ukraine’s allies are starting to see a way the war can end, but they lack a plan to achieve it. A counter-offensive in the spring is said to upset the balance, but the picture remains unclear.
Germany, EU reach agreement on internal combustion engine plan
The European Union has reached a deal with Germany that aims to water down the bloc’s plan to effectively ban new internal combustion engine cars from 2035, Berlin and Brussels said on Saturday.
Iran’s truce with Saudi Arabia heals rifts, but not its economy
Iran’s move to resume diplomatic ties with Saudi Arabia was a radical break with years of enmity between the two Middle Eastern rivals, but it hasn’t been enough to prop up its struggling economy.
Financial Regulations Summary Convicted of insider trading, he is Crypto’s latest legal hope
Crypto has found an unlikely ally in its fight against oversight from Wall Street’s top regulator: a former executive at Coinbase Global Inc. who pleaded guilty this year to providing trading advice to his brother and a college friend.
Crypto faces reckoning as the SEC prepares action against Coinbase
The Securities and Exchange Commission and Coinbase Global Inc., the largest US crypto exchange, appear headed for a legal showdown that will have outsized consequences for both sides.
Banks Step Up to Serve Crypto Firms After Signing, Silvergate Blowups Forward Guidance Monday (all times ET)
10:40 am: Elderson of the ECB speaks on the 30th anniversary of the Foreign Bankers’ Association
12 p.m.: Schnabel from the ECB speaks at Columbia Economics – Economic Research Program at Columbia University
1 p.m.: Bailey from the Bank of England speaks at the London School of Economics
Tuesday
4:35 a.m.: Enria from the ECB speaks at the 22nd Handelsblatt Annual Conference on Banking Supervision on European banking supervision
4:45 am: Bailey of the Bank of England speaks about the Silicon Valley bank at the hearing of the UK Parliament’s Treasury Select Committee
8:30 am US February Economic Forecast
9 am US S&P CoreLogic Case-Shiller index for January
10:00 am: Conference Board Consumer Confidence Index for US for March; The Fed’s Barr speaks at a Senate Banking Committee hearing on the collapse of the Silicon Valley bank
10:15 a.m.: Lagarde from the ECB speaks at the opening ceremony of the BIS Innovation Hub Eurosystem Center in Frankfurt
Research: Fed rate hike expectations have dropped dramatically
The failures of Silicon Valley Bank in the US and Credit Suisse in Europe have upended traders’ assumptions of a continued series of rate hikes by the Federal Reserve to combat inflation. Investors are now betting that rates are more likely to fall rather than rise, reflecting their belief that the Fed needs to change course and cushion a sluggish economy. CME Group’s interest rate futures market tracker shows traders have effectively ruled out the possibility that the Fed’s target rate will end 2023 higher than it is now. Just a month ago, traders believed there was over a 9 in 10 chance that rates would continue to rise. The swing reflects the complexity of the Fed’s challenge. Persistent inflation has prompted the central bank to tighten funding conditions. However, the recent banking crisis signaled that rapidly rising interest rates could cause significant financial disruption.
-Matt Grossman
Comment Welcome to the superprime banking crisis
Banks like Silicon Valley Bank and Signature Bank, which catered to some of the wealthiest and most creditworthy customers — those with superprime credit ratings — are the ones running into the biggest problems, writes Telis Demos.
When a bank fails, there’s always a bad guy
It’s tempting to try to solve the too-big-to-fail problem by chopping up the giant banks into small pieces, but that ignores the long history of failure of mid-sized and smaller banks in the US, writes Jason Zweig.
Unlimited deposit insurance cannot solve everything
Treasury Secretary Yellen dampened hopes of a solution to the banking crisis by saying she wasn’t considering offering “blanket” deposit insurance, but that almost certainly won’t wipe out the idea, writes Telis Demos.
The Fed is losing money for the first time
In a previously unknown development, the Federal Reserve has suffered approximately $42 billion in operating losses since September 2022, when the massive interest rate risk created by the Fed’s maturity mismatch between assets and liabilities resulted in cash operational losses, and the Losses now average $7 billion a month, write Paul H. Kupiec and Alex J. Pollock.
Mr. Kupiec is a Senior Fellow at the American Enterprise Institute. Mr. Pollock is a Senior Fellow at the Mises Institute and a co-author of Surprised Again! The Covid Crisis and the New Market Bubble”.
(FOLLOWING) Dow Jones Newswires
3/27/23 0715ET
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