Why Central Banks May Not Be Able to Salvage the Global Banking Industry
Why Central Banks May Not Be Able to Salvage the Global Banking Industry
The information on this website is general in nature and does not take into account your objectives, financial situation, or needs. Consider seeking personal advice from a licensed adviser before acting on any information.
The global banking industry has been hit by a double whammy: the US banking crisis and the European banking crisis.
A recent development in the US market saw First Republic Bank plan to sell part of its equity as a means of raising funds.
This grand plan followed an agreement involving 11 Wall Street banks to inject roughly $US30 billion of liquidity or cash into the bank after fears arose of a bank run where depositors would withdraw their funds en-masse.
The crisis is not just limited across the pond. Switzerland's second-largest bank has become a takeover target, with U.S. investment giant, UBS, reportedly in talks to purchase or acquire the bank.
According to Odeon Capital Group's Dick Bove, analysts believe the worldwide banking system is facing a credibility crisis. This loss of trust has resulted in depositors losing confidence in smaller banks, which has put those with debts in a vulnerable position, and therefore more prone to bank runs. Troubling news emerged when US Treasury Secretary Janet Yellen revealed during a congressional hearing that US community bank customers with over $US250,000 in deposits were not necessarily protected. This sparked fears among the depositors, who shifted their savings to the major US banks, thereby raising doubts over the viability of thousands of US regional banks.
Bove warns that there are $US19 trillion worth of deposits in the US, which is practically impossible for regulators to backstop, making the coming days an uncertain period for the international banking community. The crisis has echoed events of the Global Financial Crisis, where international financial institutions began to doubt if their counterparties would make good on their borrowing. In other words, many bankers were worried about lending to one another for fear of not getting their money back.
Bond trader Angus Coote states that with the exceptional rise in interest rates, something was bound to break, and now that it has, it could cause a ripple effect for a while. Return of capital is becoming more important than return on capital, which has left many banks in a mismanaged position. With the question of whether central banks could contain the damage, it seems obvious that we are looking at the end of a business cycle, as most inefficient companies will be bought by more efficient ones.
Professional investor Danielle Ecuyer says that the coming weeks will be critical for central banks, particularly in the US, Switzerland, and Europe, to restore confidence in the bank system. But is restoring confidence achievable? Central banks might not be able to salvage the global banking industry.
It is evident that central banks have revealed shortcomings in handling the obstacles caused by the COVID-19 pandemic. For example, in March 2020, US banks' excess reserves surpassed $3 trillion, creating a new record. However, its debt levels and its reliance on short-term wholesale funding have not been resolved.
One aspect to consider is the presence of FinTech companies that are gaining a foothold. These businesses can offer online banking services with no fees compared to traditional banks. FinTech can provide quick, transparent, and a more reachable option for those who have been left underserved by banks in the past.
To sum it up, the global banking industry is facing a crisis. Central banks might not be able to manage the damage caused, and the coming days might be uncertain for the banking sector. If the confidence of the banking system is not restored soon, there may be a surge of capital injections, mergers and consolidations between big banks to keep the industry afloat, creating an oligopoly situation. Moreover, the innate problems of traditional banking, like a reliance on short-term or government-driven policies, will only lead to more vulnerabilities, which the FinTech and other innovative industries might better exploit.
Published:Monday, 20th Mar 2023 Source: Paige Estritori
Please Note: If this information affects you, seek advice from a licensed professional.
Australia's Westpac Banking Corporation has reached a settlement of A$130 million (approximately $81.84 million) to resolve a class action lawsuit concerning its auto finance practices. The lawsuit, initiated by law firm Maurice Blackburn in 2020, alleged that between March 1, 2013, and October 31, 2018, Westpac and its subsidiary, St George Finance, permitted car dealers to increase interest rates on car loans to earn higher commissions. - read more
The Australian Securities and Investments Commission (ASIC) has commenced an in-depth review of the motor vehicle finance sector, aiming to bolster consumer protections, particularly for borrowers in regional and remote areas, including First Nations communities. This initiative underscores ASIC's commitment to ensuring fair and responsible lending practices across Australia. - read more
In a significant move towards environmental sustainability, Bank Australia has ceased offering loans for new petrol, diesel, and hybrid vehicles as of February 2025. This policy change aligns with the bank's commitment to achieving net-zero carbon emissions by 2035. - read more
The Australian used car market, which experienced robust growth throughout most of 2024, has shown signs of slowing down in the final months of the year. This trend suggests a more cautious outlook for 2025, influenced by various economic factors and affordability concerns. - read more
In a strategic move to concentrate on its core banking operations, Westpac Banking Corp has announced the sale of its auto finance loan book to non-bank lender Resimac Group. The transaction is valued between A$1.4 billion and A$1.6 billion and is expected to be completed by the first half of 2025. - read more
In this article, we are embarking on a guided journey that we believe will help immensely in navigating the intricacies of the car loan process. - read more
When it comes to buying a car, understanding the loan terms is just as essential as choosing the right make and model. The terms of a loan can significantly affect your financial journey beyond just the asking price. In a marketplace brimming with attractive deals, comprehending these terms can be your greatest asset, ensuring you drive away with a well-suited financing plan. - read more
Finding an affordable car finance option can make the dream of owning a vehicle a tangible reality for many Australians. It’s about understanding the intricacies of the loan market, interest rates, and finding a plan that aligns with your financial prospects and constraints. In a society built on the convenience of mobility, securing a car that meets both your needs and your budget is essential. - read more
Buying a car is a significant financial decision, and understanding the loan terms involved is crucial to navigating this process effectively. Loan terms can dramatically affect how much you end up paying over the life of your loan, and they play a pivotal role in ensuring that you are empowered during the car buying process. These terms determine your monthly payments, interest rates, and the total cost of the car in the long run. - read more
Finding the right car loan in Australia can be just as critical as selecting the car itself. Car finance, though a common undertaking, involves nuanced decisions that can have a significant impact on your financial future. - read more
Need Help Finding a Loan?
Get a free car loan eligibility assessment and compare offers tailored
specifically to your circumstances.
All finance quotes are provided free (via our secure server) and without
obligation. We respect your
privacy.
Knowledgebase
Truth in Lending Act (TILA): A federal law designed to promote the informed use of consumer credit by requiring disclosures about terms and costs.
