(MENAFN) In the wake of the high-profile failures of America's Silicon Valley Bank and Signature Bank, along with the bailout merger of Switzerland's Credit Suisse with UBS, banking officials in the United States and Europe are on the lookout for any signs that might indicate a looming credit crunch. The Federal Reserve recently opted for an interest rate hike of 25 basis points, while regulators sought to offer assurances that the banking system was "sound and resilient."
According to US media reports, financial markets were under residual stress after the recent turmoil in the banking sector. The dollar strengthened against the euro and pound sterling amid risk aversion, while euro zone government bond yields plummeted. As a result, the banking sector is being closely scrutinized for stress buildup that might potentially lead to a credit crunch.
Federal Reserve Bank of Minneapolis President Neel Kashkari emphasized the need to flag warning signs of a credit crunch, as it often comes hand in hand with a recession. A credit crunch, or credit squeeze, occurs when financial institutions grant loans to borrowers with a low credit rating, leading to a sudden reduction in the overall availability of loans or a tightening of the conditions required to obtain a loan from banks.
Banking officials are aware of the risks associated with a credit crunch, especially in the wake of recent banking failures and mergers. The failures of Silicon Valley Bank and Signature Bank, as well as the merger of Credit Suisse with UBS, have heightened concerns about the stability of the banking system. The Federal Reserve's decision to raise interest rates by 25 basis points is an attempt to manage these risks and maintain financial stability.
The banking sector is currently under close observation, as officials seek to detect any signs of stress that might indicate a looming credit crunch. While regulators have offered assurances that the banking system is "sound and resilient," ongoing monitoring and risk management will be necessary to prevent a potential financial crisis.
MENAFN27032023000045014228ID1105867850
Legal Disclaimer:
MENAFN provides the information “as is” without warranty of any kind. We do not accept any responsibility or liability for the accuracy, content, images, videos, licenses, completeness, legality, or reliability of the information contained in this article. If you have any complaints or copyright issues related to this article, kindly contact the provider above.