IIF Chief Warns That Although The Banking Instability Was Not A Crisis, “The Downside Risks Are Real”

Tim Adams, chief executive officer of the Institute of International Finance, claims that the upheaval in the banking industry that caused the failure of multiple lenders was not a systemic problem and has since eased.

The collapse of Silicon Valley Bank, the greatest banking failure since the global financial crisis, in early March sent off a wave of market panic that engulfed the industry in both Europe and the United States.

The collapse of Credit Suisse was caused by a flight of investors and depositors, and Swiss authorities orchestrated the 167-year-old institution’s emergency rescue by domestic rival UBS.

Since the markets have calmed, many have come to the conclusion that the issues are specific to the troubled banks and do not represent a systemic concern. But in many industrialized economies, the ripple effect has dimmed the outlook for the economy.

Adams referred to the mayhem in March as “a period of market turmoil or turbulence” while speaking to the media on the sidelines of the International Monetary Fund Spring Meetings in Washington, D.C., on Tuesday. He rejected the idea that it was a “crisis.”

“We have over 4,000 banks in the United States, we have about 10,000 banks globally that are part of SWIFT and 35,000 financial institutions around the world — 99.999% of them opened their doors over the past month and had no problems whatsoever — [it’s] really just a few isolated idiosyncratic institutions,” Adams told CNBC’s Joumanna Bercetche.

“So I think it is not a crisis, I think it was market turbulence, it has subsided, it has stabilized, but we need to be vigilant and we need to watch for other stresses in the system.”

A global trade organization for the financial services sector, the IIF has members in more than 60 countries and has a membership of about 400. Adams stated that the negative risk to growth, particularly in advanced nations, was the main concern among members.

The IMF on Tuesday reduced its estimate of global growth over the next five years to roughly 3%, which is the lowest estimate for the medium term in a World Economic Outlook report from the IMF since 1990.

The institution’s chief economist, Pierre-Olivier Gourinchas, stated on Tuesday that the financial instability had negatively impacted the outlook for growth, particularly in light of central banks’ recent rapid tightening of monetary policy, which has sharply raised funding costs for lenders and increased vulnerabilities.

“There are risks, there are geopolitical risks which we can talk about, but the downside risks are real and we just don’t know how deep they are,” Adams said.

“The Fed’s going to probably tighten again, we have other central banks in Europe and the U.K. tightening, so there are risks to the downside.”

In response to the numerous financial crises last month, regulators in the U.S. and Europe acted quickly to reduce the risk of contagion. However, according to Tuesday’s statement by U.S. Treasury Secretary Janet Yellen, the banking sector continues to be well-capitalized and have enough of liquidity.

Adams claimed that a large number of the regulators he had spoken to, including those engaged in creating the Basel III and Dodd Frank frameworks in the wake of the financial crisis, did not think significant regulatory reforms were required this time around.

“It’s a very different system than [what] was prevailing in 2007, 2008. I do think we need to better understand what went wrong at certain institutions like SVB, I think we do need to ask what happened to supervision, but I don’t think we’re going to see regulatory changes,” he added.

(Adapted from CNBC.com)

Categories: Economy & Finance, Entrepreneurship, Geopolitics, Regulations & Legal, Strategy, Sustainability

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