/ world today news/ After the USA, Europe is also forced to save its banking system. One of the largest banks, Credit Suisse, was threatened with bankruptcy. The consequences of its collapse are quite comparable to the bankruptcy of Lehman Brothers, says economist Nouriel Roubini, who predicted a global recession in 2008. What does the banking crisis in the US and the EU warn of?
Economist Nouriel Roubini, who predicted a global recession in 2008, warned that the collapse of the Swiss bank Credit Suisse would be comparable to the collapse of Lehman Brothers. According to him, the problems at Credit Suisse may be too serious for Switzerland to save the company.
Credit Suisse has significantly more assets than the American Silicon Valley Bank (SVB) before the bankruptcy. At the end of the fourth quarter, the assets of Credit Suisse exceeded 500 billion dollars. This is more than twice the assets of the US SBB.
Therefore, everything that happens with the Swiss bank will have systemic consequences not only for the European financial system, but also for the world, Roubini believes. “Thus, if the SRB creates a ripple effect on the global financial markets, something bad that happened to Credit Suisse will be many times more serious – something more like the moment with Lehman Brothers,” he adds.
Shares in Credit Suisse fell 30% on Wednesday after its major shareholder, the National Bank of Saudi Arabia, pulled out of further investment. There is a risk that the bank will not be able to meet its debt obligations. On Thursday, the situation changed: after the provision of assistance from the Swiss Central Bank, the bank’s shares rose by 40%.
Roubini’s warning came hours before the Swiss central bank announced that Credit Suisse could count on its liquidity support. However, there are still risks that the situation could escalate into a global global crisis. What are the dangers of such problems in banks, both American and European?
“Banks lend to each other, so the collapse of a large structure inevitably leads to problems in others. Secondly, banks in recent years, accustomed to low interest rates, actively invested in government bonds. And when regulators started raising interest rates to fight inflation, it caused the asset class to depreciate. And this is already a problem for the majority of financial institutions around the world, since government bonds have always been considered a safe haven during crises, they are piling up. And the rise in interest rates in the US and Europe now means that most of these assets in the banks have depreciated,” says Artyom Deev, analyst.
When word gets out about such serious problems, depositors flock to the banks to withdraw their money, and this definitely leads to the collapse of the banking system. That’s why regulators are so generous in helping banks. They don’t want the entire banking system to collapse like a house of cards.
The ECB will provide support for Credit Suisse in the amount of 53 billion dollars. The Federal Reserve does the same by injecting liquidity into the US financial sector. “That is, the regulators quickly started making decisions to stop all the existing risks, so that maybe there will not be a global financial crisis after all,” says Deev.
“In recent decades, the world economy has accumulated so many problems that cannot be solved quickly and simply. No wonder the outstanding Russian economist Nikolay Kondratiev, the author of the Theory of Waves, who predicted all the crises in the 20th century, said that at the beginning of the 21st century, there will be not a structural, but a systemic crisis. The structural crisis, as for example in 2008, affected only the banking sector. The systemic crisis is already reformatting the entire current global economic model,” Deev claims.
According to him, a systemic crisis is inevitable due to the accumulated global economic, financial, social and demographic contradictions. The only question is when it will be. “But now many believe that this crisis has already begun – it is a series of endless recessions, downturns and crises that can drag on for decades. It is possible that the banking crisis in the US and the EU is another manifestation of the collapse of the entire world economy system that is happening before our eyes. This system is so huge that A collapse doesn’t happen in a day – it’s a gradual process where bricks gradually fall one after another from a solid building. This is exactly what we are seeing,” summarizes Artyom Deev.
As for Switzerland, the additional capitalization of the Swiss bank “Credit Suisse” in the amount of 54 billion is fully capable of supporting it. However, the general situation in the country is alarming. “The main conclusion is that banks will now start to tighten the conditions for financing projects, which will lead to a slowdown in economic growth. In Switzerland, GDP growth has almost stopped. Consumer confidence is low. The cost of risk will increase, investment in non-prime assets will decrease, companies will receive less funding,” says Georgi Vashchenko, an analyst.
At the same time, the markets will not calm down quickly, the rebound on the background of the help provided by the CS will be short-lived. “There are rumors that several more banks are allegedly at risk. All this worries investors, especially inexperienced ones. At the same time, soothing verbal interventions are not enough to calm the players. Stock markets may still continue to fall. Especially if negative news about the banks appears on the horizon. Recovery will most likely begin if no other bank fails in two months, Vashchenko believes.
Valery Emelyanov, an expert on the stock market, calls what is happening a simple cyclical crisis that happens every few years after active asset growth.
“During the year of the pandemic and long before, banks accumulated problems related to investing in new areas, some of which did not work and turned out to be unprofitable. At the same time, the authorities first gave a lot of money for all kinds of purposes, and now they are gradually taking away access to free funds. It is becoming more and more difficult for banks to work in the conditions of a shortage of money, or rather its appreciation. Problems pop up here and there. It is impossible to guess in advance and invest only “in the good”. The fact that it was not necessary to accumulate some assets (long bonds, for example) will be understood after the fact by the banks. Their job is to assess the risks and sometimes the risks prevail and the market is restructured,” explains the expert.
According to him, it is difficult to say for sure how this crisis will end. Whole industries can collapse, that is, the crisis can go beyond just banking.
“I would suggest that many small and medium-sized innovative companies will not survive the new crisis cycle. First of all, this applies to blockchain projects, biotech companies, cloud services and other futuristic non-profit enterprises. If there is less free money in the market, then they will not get financing in the first place,” says Emelyanov.
“The crisis is not necessarily banking in its purest form. Most likely, many industries will suffer, except for the most basic ones, such as the production of household goods, medicine, clothing, as well as basic services – communications, heating, water, gas, fuels and so on. In a few years the market will clear up and we will see growth in some new areas. Maybe related to artificial intelligence, transportation automation, or something similar. Some companies will disappear, others will come. In Russia, most likely, the main composition of the leading enterprises and industries will not change. It has not changed for more than 20 years”, argued the expert.
Translation: V. Sergeev
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