May 31, 2023

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Banking Troubles May Lead to Financial Crisis By Reuters

© Reuters. Source: Reuters.

Written by Ringo Jose

SYDNEY (Reuters) – The chief executive of Australia and New Zealand Banking Group said on Monday that the recent turmoil in the global banking system has the potential to cause a financial crisis, although it is too early to speculate that it could lead to a crisis similar to that of 2008.

Authorities around the world are on high alert for the fallout from recent bank turmoil in the wake of the collapse of Silicon Valley Bank (SVB) and signature bank (NASDAQ:) in the US and the emergency takeover of Credit Suisse.

“It’s clearly a crisis for some, but is it a financial crisis, who knows? Could it possibly be a crisis? Yes, it has the potential to be one,” CEO Shane Elliott said in an interview on the bank’s website. .

But he said it was too early to assume that the current situation could lead to “another global financial crisis,” referring to the global financial crisis some 15 years ago that plunged the world’s major advanced economies into their worst recession since the Great Depression of the 1930s.

Australian banks did not suffer as much as those in the US and Britain during the 2008 crisis, thanks in part to stricter lending standards and a more flexible home economy.

“That’s a different issue. This is really about the global war on inflation and how central banks raise interest rates very quickly in order to combat that, and that takes a toll,” said Elliott, the chief executive officer of the No. 4 country lender.

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The Australian banking regulator indicated, shortly after the collapse of its startup-focused lender, SVB, that it had stepped up supervision of local banks.

Elliott said global regulators acted much faster to support banks this time around, having learned lessons from previous crises.

“Having said all that, it’s clearly not over yet. I don’t think you can sit here and say, ‘Okay, this is all over, Silicon Valley Bank and Credit Suisse, and you know, life will go back to normal.’” over a long period of time.”

Rachel Slade, executive director of the personal banking group at National Australia Bank (OTC:) Ltd, the country’s second-largest bank, told the Australian Financial Review on Monday that mortgage customers were starting to show the first signs of stress after 10 consecutive interest rate increases, But there have been no spikes yet in defaults.

Chancellor of the Exchequer Jim Chalmers said Australia was well positioned to withstand some volatility because its banks were well capitalized, while the Reserve Bank of Australia noted last week that banks were “undoubtedly strong”.