In the wake of Credit Suisse and US Bank collapses, European banks prepare for a possible hit.
Concerns about a contagion spreading to the entire European banking industry have been expressed in light of the recent crisis in confidence in Credit Suisse and the bankruptcy of two US banks. According to a Reuters article, at least two significant regional banks are allegedly considering contagion scenarios and watching for stronger support cues from the Federal Reserve and the European Central Bank (ECB).
These banks have held internal discussions on when the ECB should intervene to highlight banks’ resilience, particularly their capital and liquidity levels, according to two senior executives with knowledge of the discussions. There is concern that making such declarations too soon would backfire and worsen the prevailing hysteria.
The executives emphasized how well-capitalized and liquid their banks and the industry as a whole are.
Given that the bankruptcies of Silicon Valley Bank and Signature Bank in the United States caused concerns in Europe, one of the executives stated that the Federal Reserve would need to act first. But neither the ECB nor the Fed have released any official statements regarding the situation. The ECB recently maintained its plans for a rate increase of half a point to control inflation, but it also made clear that it was keeping an eye on market concerns. They claimed that it would operate in accordance with what was required to preserve financial and price stability within the currency union.
As one of the 30 globally prominent banks, Credit Suisse’s problems might have an impact on the entire financial system. The merger of the two banks might result in the loss of up to 10,000 jobs, and regulators seek a resolution to Credit Suisse’s crisis of confidence before markets reopen on Monday. However, talks with UBS are apparently running into substantial roadblocks.
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