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.
The South Australian government has announced a proposal to eliminate stamp duty for residents aged 60 and over who choose to downsize to newly built homes. This initiative aims to encourage seniors to move into more suitable housing, thereby freeing up larger family homes and increasing housing availability. - read more
Western Australia has witnessed a substantial increase in new home loans, with a 26.6% rise in the December 2025 quarter compared to the previous three months. This growth is largely attributed to first-home buyers taking advantage of expanded federal government support schemes. - read more
In the face of escalating property prices and limited housing availability, Brisbane's first-home buyers are increasingly adopting a strategy known as 'rentvesting.' This approach involves purchasing more affordable properties in less expensive areas while continuing to rent in their preferred locations. - read more
A credit rating is essentially a numerical representation of your financial trustworthiness. It's like a report card for your creditworthiness, where higher scores indicate better financial habits. Lenders and financial institutions scrutinize this score when you apply for credit, serving as a primary factor in approving or denying loan applications. - read more
When you're on the journey to owning your dream home, securing the right home loan is as critical as choosing the perfect location. The benefits of using online home loan calculators can't be overstated, as they wield the power to illuminate the murky depths of mortgage rates, terms, and payments with surprising precision. - read more
In recent years, refinancing has emerged as a popular financial strategy for many Australian homeowners. With the housing market's dynamic nature and fluctuating interest rates, more people are considering the benefits of refinancing their home loans. This trend is not surprising, as refinancing can potentially reduce monthly payments, secure lower interest rates, and assist with debt consolidation. - read more
Knowledgebase
Monetary Policy: The actions of a central bank or other regulatory authority that determine the size and rate of growth of the money supply.
