The Intelligence from The Economist

Stopping the spread: how to fix the banks

Mar 21, 2023
Henry Kerr, the Economics editor for The Economist, delves into the shaky state of the banking sector, analyzing recent upheavals like Credit Suisse's collapse and the aftermath of Silicon Valley Bank. He critiques regulatory frameworks, stressing the urgent need for reforms to stabilize banks and credit markets. The discussion also intriguingly contrasts Russia's struggles in warfare with the rising trend of French bulldogs as America’s favorite pet, highlighting how cultural influences shape our choices.
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INSIGHT

Bank Resolution Plans

  • Regulators aimed for orderly bank resolutions after the 2008 crisis, but recent events show this hasn't worked.
  • Ad-hoc rescues and uncertainty about bank health are tightening financial conditions.
INSIGHT

Banking Sector's Impact

  • The banking sector's uncertainty impacts the real economy through tightening financial conditions and linkages like commercial real estate loans.
  • This complicates central banks' decisions on raising interest rates further or easing off to address inflation.
ADVICE

Regulatory Gaps

  • Banks like SVB and Signature Bank should not have been exempt from stricter resolution planning.
  • The Fed's emergency lending bought time to address problems in small and medium-sized banks.
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