The world’s central banks accelerate war against inflation

Following its 11th successive rise, the Bank of England said it had taken note of the “broad and volatile moves” in financial markets, but Britain’s banking system remained robust.

“The (Monetary Policy Committee) will continue to closely monitor any effect on the credit conditions faced by households and businesses and therefore the impact on the macroeconomic and inflation outlook,” he said.

Although the recent jitters in the markets have subsided, it has caused investors to adjust to more difficult economic and credit conditions.

On Thursday, the Swiss National Bank raised its benchmark interest rate by 50 basis points and said the takeover of Credit Suisse by Swiss rival UBS had averted financial disaster.

Swiss authorities had urged the banks to join and offered financial guarantees worth up to 260 billion Swiss francs ($280 billion) to close the deal.

“At this point, the focus must be that we can maintain financial stability and that the deal closes quickly and smoothly,” Thomas Jordan, president of the Swiss National Bank, told a news conference.

The Federal Reserve had already indicated on Wednesday that it was about to pause further increases in borrowing costs after the collapse of two US banks earlier this month sparked concerns of contagion throughout the banking system.

Fed Chairman Jerome Powell said stress in the banking sector could trigger a credit crunch with “significant” implications for a slowing US economy.

Citigroup lowered its recommendation for the European banking sector, warning that the rapid pace of interest rate rises will continue to weigh on economic activity and bank profits.

“Fundamentals in the European banking sector appear healthy. But the ongoing confidence crisis could limit banks’ risk appetite and reduce the flow of credit,” said Citigroup equity strategists led by Beata M Manthey.

The Credit Suisse bailout, which followed the bankruptcies of California-based Silicon Valley Bank (SVB) and New York-based Signature Bank, raised further concerns about investor exposure to a fragile banking sector.

Swiss financial market regulator FINMA on Thursday defended its decision to impose heavy losses on some of Credit Suisse’s bondholders as part of its bailout, saying the decision was legally binding.

The decision to prioritize shareholders over Additional Tier 1 bondholders has rocked the $275 billion Additional Tier 1 bond market, and some Credit Suisse AT1 bondholders are seeking legal advice. .

Convertible bonds were designed to be called upon during bailouts in order to avoid the costs of bailouts being passed on to taxpayers, as was the case during the 2008 global financial crisis.

“AT1 instruments issued by Credit Suisse contractually stipulate that they will be canceled with zero value in a ‘viability event’, particularly if extraordinary state support is granted,” FINMA said.

Sharp falls in bank shares following the punishment of Credit Suisse’s AT1 bondholders prompted European supervisors to rush to defend this crisis-fighting tool.

Asian money makers are also trying to calm investor nerves on AT1 bonds, but the ongoing turmoil is likely to keep further debt selling at bay.

The central banks of Hong Kong and Singapore said they would abide by the traditional hierarchy of creditor rights in the event of a bank failure in their respective jurisdictions.

However, the volatility may lead at least two Japanese banks, Mitsubishi Financial Group and Sumitomo Mitsui Financial Group, to suspend AT1 issuance, two sources told Reuters.

banking supervision

From Washington to Tokyo, policymakers have stressed that the turmoil is different from the crisis of 15 years ago, saying banks are better capitalized and funds are easier to draw on.

However, some observers believe the banking system is more vulnerable to rumors and fast-moving in an era of widespread use of social media, posing a challenge for regulators trying to limit instability.

Jane Fraser, CEO of Citigroup, said Wednesday at the Washington DC Economic Club that social media is a “complete game changer” when it comes to banking crises.