Was that it now? No question came up as often this week as this one. In almost every conversation and almost every meeting, the discussion eventually revolved around this one point: Is there a new financial crisis? First the Silicon Valley Bank (SVB), then Credit Suisse - and now anxiously waiting for something else to come.
As one interviewee who experienced the 2008 financial crisis at first hand put it this way: It could be, but we don't know. After September 15, 2008, the day on which the investment bank Lehman Brothers went under in New York, it was relatively quiet for a few days - until the next banks wobbled. That's why he doesn't dare to make any predictions yet.
The well-known economist Barry Eichengreen, whom my colleagues in the US caught on the phone, went a little further. "The authorities in the United States and also in Switzerland have shown that they stand behind the banks and the financial system," Eichengreen said in the Capital interview. It is therefore "unlikely that people will lose their confidence in the entire banking and financial system". However, Eichengreen has already identified a beneficiary of the new uncertainty: He predicted that many customers would shift their money from small and medium-sized financial institutions to the big players.
We will be watching the numbers for the first and second quarters in the banking sector particularly closely in the coming months. The slide in Deutsche Bank's share price, which was traded as a beneficiary of the crisis before Friday, does not bode well.
Watch the video: Swiss National Bank - Loans are not gifts.
Particularly impressive was a conversation I had with the economics expert Ulrike Malmendier, whom I met this week for an interview that you can read in the next issue of Capital. Just so much in advance: Malmendier actually lives in California, she came to present the latest economic forecast by the German Council of Economic Experts. Shortly before, she had experienced how panic spread in the USA, how everyone suddenly looked at each other and quickly wanted to withdraw their money from the Silicon Valley Bank.
For Malmendier, the bankruptcy of the SVB in California and the near-bankruptcy of Credit Suisse are two very different cases, but they have one thing in common: Both cases brought down a bank run, albeit for different reasons. Such bank runs, according to Malmendier, are difficult to control – not even through stricter regulation and better capital requirements. But only through courageous intervention. At the end of a long conversation, she also said: The markets will probably remain nervous for a while, even if we are a long way from a situation like 2008.
Beyond the bank runs, the scientist had an interesting insight ready: Malmendier's specialty is behavioral economics, she examines how people behave and why they do what they do. And that's when she recognized an interesting pattern in the recent banking crisis: People always fall back on experiences they've had before.
Someone who has experienced high inflation will be more sensitive to a rise in prices than someone who has never experienced inflation. The pattern sounds familiar from the long debates about the nature of post-coronavirus inflation (“temporary” versus “permanent”). But it obviously also applies to the risks associated with rising interest rates. Because neither bank managers nor supervisors in the USA have experienced a sharp rise in interest rates in the last 15 years, apparently nobody saw the need to deal with the risks of the rapid turnaround in interest rates - massive price losses on the banks' books - which above all the US Federal Reserve has laid down in the past year. The US banks had also sucked their fill of surefire government bonds.
We haven't learned anything from the 2008 financial crisis. Or, as Ulrike Malmendier said, the right conclusions have already been drawn from 2008. But just from the financial crisis of 2008. With the risks of rising interest rates - we remember the relief, finally, interest again! – no one expected. Although everyone knew the dangers.
The reactions of the central banks this week, above all the US Federal Reserve, were probably very clever: only a small rate hike, a quarter of a percentage point, but not a complete waiver either. Because that would probably have been a dangerous signal in two respects: Inflation – falling, but also in the USA still at six percent – suddenly no longer played a role – even though Fed Chairman Jerome Powell tightened a few weeks ago promised rate hikes. What would the markets have said if the Fed had suddenly flipped the switch completely – how worried should there be when central bankers change direction so abruptly? Such a step would probably have triggered a new tremor on the markets.
This article first appeared on Capital.
