Questions remain in the foreground, despite the stock markets indicating a return to a cautious calm
Bank crisis and financial turbulence: where are we? Questions remain in the foreground, despite the stock markets indicating a return to a cautious calm. The ECB, through supervisory chief Enria, said the recent financial fiasco highlighted the need for greater regulatory scrutiny on some aspects. In reality, as explained by Money.it, analysts are wondering whether the market is being driven by sentiment rather than fundamentals when it comes to pricing in fears of a systemic banking crisis.
Sara Devereux of Vanguard believes, for example, that “the current crisis is not like that of Lehman Brothers. Banks have had risk management issues with traditional businesses. Rapidly rising rates have exposed these weaknesses. Banks were forced to become sellers, realizing losses after their bond investments were well below face value.
The suggestion is that the SVB and Credit Suisse could still be standing today if they hadn’t lost the confidence of their customers, as evidenced by massive deposit outflows from both banks in recent months.
“It was more of a ‘sentimental contagion’ rather than the systemic one we saw during the global financial crisis,” he added. Citi also joined the chorus of more skeptical analysts, concluding that the Deutsche Bank plunge is not motivated enough. “As we have seen with Credit Suisse, the risk is that there is a psychological impact on depositors,” she concludes.
The trust issue is important. At a banking conference in Las Vegas, industry executives discussed ways to boost customer loyalty, suggesting higher deposit rates, for example.
“Trust doesn’t necessarily come from a bank’s size, but more from its profitability and community relationships,” said Angela Conti, of USAA Federal Savings Bank.