Market roundup: How the fear of a new banking crisis hits emerging markets

SVB, Credit Suisse: New banking crisis or short-term blip?

Over a week ago, New York’s Signature Bank and Silicon Valley Bank collapsed. The swift response of the U.S. authorities, followed by 11 big institutions stepping in to save First Republic Bank, another mid-size bank in trouble, wasn’t enough to fully reassure the banking industry that these were isolated events. 

State of play. It doesn’t help that Credit Suisse is borrowing up to USD 54 billion from the Swiss central bank to shore up liquidity. As a result, analysts are now trying to understand how these events could spill over into emerging markets.

Why it matters. At first, economists say there is little reason to panic because the causes of the smaller investment banks’ downfalls are isolated.

• That being said, these events were not unexpected because these smaller banks were doing what banks do: lending short-term assets (deposits, for example) and borrowing them through longer-term investments to make the spread on which they earn their profit.
• Yet it’s now clear that they did so with little diversification, relying on a fragile clientele and assets with high exposure to recent central bank decisions.

Yes, but… As pointed out by The World Economic Forum, recent interest rate hikes have made borrowing more expensive, making it harder for banks to fund themselves and reducing the value of their existing loans. Collapses only contribute to increased credit risk worldwide...