ESM’s Fioretti: Turbulence in banking sector ‘probably’ no sign of new fiscal crisis

ESM’s Fioretti: Turbulence in banking sector ‘probably’ no sign of new fiscal crisis

The recent turbulence caused by the collapse of Credit Suisse, Silicon Valley Bank and First Republic Bank will probably not mark a new fiscal crisis, Deputy Head of Financial Sector and Market Analysis at the European Stability Mechanism (ESM), Paolo Fioretti, told the Delphi Economic Forum on Thursday.

“If the worry is that today we have a fiscal crisis as in the past, with many bankrupt banks worldwide, the answer is probably not. The banks today, especially in the eurozone, are much stronger and have better readings and are in a better condition and have bigger buffers to cope with the shocks,” he said, adding, however, that he does not want to create the feeling that the picture is purely and totally positive.

It is true that there is a lot of turbulence and high volatility and uncertainty, the markets are nervous and financing cost is very high for the banks with access to the capital markets, he said. Additionally, the combination of the low yield assets that are in the banks’ balance sheets with the large increase of interest rates “can’t not affect the banks, there are consequences.”

Asked about the small- and medium-sized banks and if they have any impact to the “big game” in the economy, Fioretti  said: “I strongly believe that we must have good and proper supervision of these small and medium banks. Anyway, the lesson we learned from this turbulence is that that the regulatory and supervisory frameworks do work. They can improve but they are working.”


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