Is the economy on the verge of collapse?

Look outside and the stands are full. Travel agencies see bookings increasing. At the same time, housing prices are falling sharply, and factories after factories close their doors. How long will this last well? “You can’t charge 8 euros for a loaf of bread.”

It’s a quick turnaround. The last number of economic growth in the Netherlands, for the second quarter, was staggering: 5.3% growth in one year. But now, the economy is shrinking, the banks note, given the influx of wire transfers that millions of consumers and businesses are making through their bank accounts. Stephen van Reswik, chief executive of ING, said he sees a mild recession developing, he said at a press conference at the end of September.

Banks do not see a bleak future. admin does

Although the economy is suffering from rising energy costs and associated high inflation, Van Reswijk did not see a bleak future for banks. Homeowners can still afford their mortgages, and banks have high reserves to absorb losses. But this positive outlook stands in stark contrast to the warning issued by the European financial regulator ESRB in September.

The regulator, whose job is to detect systemic risks within the financial system, pointed to a dangerous combination of rising energy costs, rising interest rates, and falling stock and bond prices. And how this cocktail can explode from the inside in the financial system. This scenario unfolded moments later in the United Kingdom. With the support package, the Bank of England was barely able to prevent wealthy pension funds from falling into severe financial problems. It could have been Lehman’s moment in 2022 – named after the US investment bank that went bankrupt in 2008, leaving banks around the world to be bailed out, and a deep economic crisis ensued.

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Banks are often the root cause of the crisis

Suddenly Back: Fear of a Financial Crisis. In Great Britain there was an acute shortage of funds for pension funds. Investors and business partners began to question the health of Credit Suisse. How can you reach this? After US investment bank Lehman Brothers went bankrupt in 2008, banks were cleaned up and forced to increase precautionary margins?

Banks have a crucial role in the economy. It attracts “short” money (such as savings) and lends it “long” (such as mortgages). This is how they keep the economy going (or hold it back if they stop). But they’re also Achilles’ heel.

Illustration: Gilrick Atima

If financiers or savers begin to doubt the bank and ask for their money back, the amount of money in the bank’s cash drawer decreases, because most of it is tied up in “long” loans. This can tempt others to get their money back as well, while still being possible: a bank run.

This applies not only to savings, but also to more complex financial products: the party does not like to face a bank that he does not fully trust. Before you know it, you are known as the party who can have financial problems and clients are taking money from you.

Higher reserves and stricter requirements help prevent a financial crisis, but banks will always be prone to panic.

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