Beautiful Virgin Islands

Wednesday, Aug 27, 2025

Banking stress puts U.S. and Europe on watch for credit crunch

Banking stress puts U.S. and Europe on watch for credit crunch

Stress in the banking sector is being closely monitored for its potential to trigger a credit crunch, a U.S. Federal Reserve policymaker said on Sunday, as a European Central Bank official also flagged a possible tightening in lending.
Authorities around the world are on high alert for the fallout from recent turmoil at banks following the collapse in the United States of Silicon Valley Bank (SVB) and Signature Bank (SBNY.O) and the rescue takeover a week ago of Credit Suisse (CSGN.S).

Last week ended with indicators of financial market stress flashing. The euro fell against the dollar, euro zone government bond yields sank and the costs of insuring against bank defaults surged despite assurances from policymakers.

In the latest effort to calm investors, the U.S. Treasury said on Friday that the Financial Stability Oversight Council agreed that the U.S. banking system is "sound and resilient".

"What's unclear for us is how much of these banking stresses are leading to a widespread credit crunch. That credit crunch ... would then slow down the economy. This is something we are monitoring very, very closely," Minneapolis Fed President Neel Kashkari said Sunday on CBS show "Face the Nation."

"It definitely brings us closer," said Kashkari, who has been among the most hawkish Fed policymakers in advocating higher interest rates to fight inflation.

He said it remained too soon to gauge the "imprint" bank stress would have on the economy and therefore too soon to know how it might influence the next interest rate decision of the Federal Open Market Committee (FOMC).

Meanwhile in Europe, the ECB believes that recent banking sector turmoil may result in lower growth and inflation rates, its vice president Luis de Guindos said.

"Our impression is that they will lead to an additional tightening of credit standards in the euro area. And perhaps this will feed through to the economy in terms of lower growth and lower inflation," he told Business Post.

'CONCERNING SIGNS'

After the Swiss government engineered the rescue takeover of Credit Suisse by Zurich-based rival UBS (UBSG.S), Germany's Deutsche Bank (DBKGn.DE) moved into the investor spotlight.

Shares in Germany's largest bank fell 8.5% on Friday and the cost of insuring its bonds against the risk of default jumped sharply and the index of top European bank shares (.SX7P) fell.

The sudden spike in tensions for banks has raised questions about whether major central banks will continue to pursue aggressive interest rate hikes to try to bring down inflation, and prompted some to speculate on when rates will start to fall.

Erik Nielsen, group chief economics advisor at UniCredit in London, said central banks should not separate monetary policy from financial stability at a time of heightened fears that banking woes could lead to a widespread financial crisis.

"Major central banks, including the Fed and the ECB, should make a joint statement that any further rate hike is off the table at least until stability has returned to the financial markets," Nielsen said in a note on Sunday.

The Fed raised interest rates a quarter of a point this week but opened the door to pause further increases until it is clear how bank lending practices may change after the recent collapse of SVB and New York-based Signature Bank.

"There are some concerning signs. On the positive side is deposit outflows seem to have slowed down. Some confidence is being restored among smaller and regional banks," Kashkari said.

Turbulence among banking stocks on both sides of the Atlantic continued into the end of the week, despite efforts by politicians, central banks and regulators to dispel concerns.

"We've seen that capital markets have largely been closed for the past two weeks. If those capital markets remain closed because borrowers and lenders remain nervous, then that would tell me, okay, this is probably going to have a bigger impact on the economy," Kashkari said, adding: "So it's too soon to make any forecasts about the next FOMC meeting."

The Fed has rolled out an emergency lending program meant to keep other regional lenders out of trouble. Recent data showed money moving from smaller to larger banks in the days after SVB's March 10 collapse, though Fed chair Jerome Powell said last week he thought the situation had "stabilized".
Newsletter

Related Articles

Beautiful Virgin Islands
0:00
0:00
Close
Spotify’s Strange Move: The Feature Nobody Asked For – Returns
Manhunt in Australia: Armed Anti-Government Suspect Kills Police Officers Sent to Arrest Him
China Launches World’s Most Powerful Neutrino Detector
How Beijing-Linked Networks Shape Elections in New York City
Ukrainian Refugee Iryna Zarutska Fled War To US, Stabbed To Death
Elon Musk Sues Apple and OpenAI Over Alleged App Store Monopoly
2 Australian Police Shot Dead In Encounter In Rural Victoria State
Vietnam Evacuates Hundreds of Thousands as Typhoon Kajiki Strikes; China’s Sanya Shuts Down
UK Government Delays Decision on China’s Proposed London Embassy Amid Concerns Over Redacted Plans
A 150-Year Tradition to Be Abolished? Uproar Over the Popular Central Park Attraction
A new faith called Robotheism claims artificial intelligence isn’t just smart but actually God itself
Deputy Prime Minister Angela Rayner Purchases Third Property Amid Housing Tax Reforms Debate
HSBC Switzerland Ends Relationships with Over 1,000 Clients from Saudi Arabia, Lebanon, Qatar, and Egypt
Sharia Law Made Legally Binding in Austria Despite Warnings Over 'Incompatible' Values
Italian Facebook Group Sharing Intimate Images Without Consent Shut Down Amid Police Investigation
Dutch Foreign Minister Resigns Amid Deadlock Over Israel Sanctions
Trump and Allies Send Messages of Support to Ukraine on Independence Day Amid Ongoing Conflict
China Reels as Telegram Chat Group Shares Hidden-Camera Footage of Women and Children
Sam Nicoresti becomes first transgender comedian to win Edinburgh Comedy Award
Builders uncover historic human remains in Lancashire house renovation
Australia Wants to Tax Your Empty Bedrooms
MotoGP Cameraman Narrowly Avoids Pedro Acosta Crash at Hungarian Grand Prix
FBI Investigates John Bolton Over Classified Documents in High-Profile Raids
Report reveals OpenAI pitched national ChatGPT Plus subscription to UK ministers
Labour set to freeze income tax thresholds in long-term 'stealth' tax raid
Coca‑Cola explores sale of Costa coffee chain
Trial hears dog walker was chased and fatally stabbed by trio
Restaurateur resigns from government hospitality council over tax criticism
Spanish City funfair shut after serious ride injury
Suspected arson at Ilford restaurant leaves three in critical condition
Tottenham beat Manchester City to go top of Premier League
Bank holiday heatwave to hit 30°C before remnants of Hurricane Erin arrive
UK to deploy immigration advisers to West Africa to block fake visas
Nurse who raped woman continued working for a year despite police alert
Drought forces closures of England’s canal routes, canceling boat holidays
Sweet tooth scents: food-inspired perfumes surge as weight-loss drugs suppress appetites
Experts warn Britain dangerously reliant on imported food
Family of Notting Hill Carnival murder victim call event unmanageable
Bunkers, Billions and Apocalypse: The Secret Compounds of Zuckerberg and the Tech Giants
Ukraine Declares De Facto War on Hungary and Slovakia with Terror Drone Strikes on Their Gas Lifeline
Animated K-pop Musical ‘KPop Demon Hunters’ Becomes Netflix’s Most-Watched Original Animated Film
New York Appeals Court Voids Nearly $500 Million Civil Fraud Penalty Against Trump While Upholding Fraud Liability
Elon Musk tweeted, “Europe is dying”
Far-Right Activist Convicted of Incitement Changes Gender and Demands: "Send Me to a Women’s Prison" | The Storm in Germany
Hungary Criticizes Ukraine: "Violating Our Sovereignty"
Will this be the first country to return to negative interest rates?
Child-free hotels spark controversy
North Korea is where this 95-year-old wants to die. South Korea won’t let him go. Is this our ally or a human rights enemy?
Hong Kong Launches Regulatory Regime and Trials for HKD-Backed Stablecoins
China rehearses September 3 Victory Day parade as imagery points to ‘loyal wingman’ FH-97 family presence
×