How the global banking crisis could prove to be good for markets

Global markets will applaud central banks’ hasty liquidity injections and the mounting evidence in favour of pausing interest rate increases.

The banking crisis that spooked investors and sent shockwaves around the world could ultimately be beneficial for global financial markets, says the CEO and founder of one of the world’s largest independent financial advisory, asset management and fintech organisations.

The comments from deVere Group’s Nigel Green come after UBS agreed to buy the embattled Credit Suisse for $3.2 billion, with the Swiss National Bank also pledging a loan of up to $108 billion to back-up the takeover.

It came just days after the second and third biggest bank failures, Silicon Valley Bank and Signature respectively, in US history in recent days.

Green says: “The events of the past week or so have sent global markets reeling as investors feared a credit crunch, and other issues, last seen during the 2008 financial crisis.

“Despite the shockwaves, we expect that the banking crisis could ultimately prove to be beneficial for global markets for several reasons. The emergency lifelines being thrown to banks by regulators and governments, among others, appear to have now halted contagion within the sector, largely containing the crisis from hitting other firms and other sectors.

Global investors’ nerves will be calmed after the US Federal Reserve, the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank and the Swiss National Bank in a coordinated statement, all vowed to boost liquidity to ease pressures in the international financial system.

It underscores the commitment to do whatever it takes to avert another wholesale crash. This brings the confidence and certainty that markets crave, adds Green.

A harsh spotlight has been focused on banks in the last week and while it has been for many of the wrong reasons, it has also “served to highlight to investors that the rules imposed in the wake of the 2008 financial crisis mean that most banks are in a strong position to withstand shocks,” says Nigel Green.

“It shows that most financial institutions have plenty of capital and more than enough liquidity to meet operational needs and withdrawals – and that what went wrong at Credit Suisse and SVB were decisions made by a handful of former senior execs.”

The deVere CEO goes on to add that the crunch in the banking sector and so-far avoided fallout for the wider global financial system strengthens the case that central banks will “ease up on interest rate hikes.”

He notes: “Central banks know that besides having to try and tame stubbornly high inflation, they also need to ensure financial stability. The recent events which rocked confidence will certainly give them cause for pause.

“The stepping back from interest rate hikes will be welcomed by investors who are concerned that overtightening now – when monetary policy time lags are notoriously long – could steer the economy into a recession.”

The deVere CEO concludes: “It’s been a bumpy ride over the past few days but successful contagion containment, the solid fundamentals of most banks, central banks rushing to inject liquidity, and the growing case for interest rate hikes to be paused will be cheered by global markets.