The recent banking sector turmoil that led to the downfall of several lenders, including Silicon Valley Bank and Credit Suisse, was not a systemic crisis, according to Tim Adams, CEO of the Institute of International Finance (IIF). While it triggered a period of market turbulence, Adams dismissed the notion that it was a crisis. Markets have stabilized, leading many to conclude that the problems were unique to the stricken banks and did not pose a systemic risk.
The IIF, a global trade body for the financial services industry with around 400 members in more than 60 countries, is primarily concerned about the downside risk to growth, particularly in advanced economies. The fall of the banks above had a ripple effect that dented the economic outlook in many advanced economies.
The IMF recently lowered its five-year global growth forecast to around 3%, marking the lowest medium-term forecast in an IMF World Economic Outlook report since 1990. Regulators in the U.S. and Europe took swift action to quash contagion risk in the face of the various banking collapses last month. U.S. Treasury Secretary Janet Yellen asserted that the banking system remains well-capitalized with ample liquidity.
Tim Adams, CEO of the Institute of International Finance, said the March chaos was a “period of market turmoil or turbulence,” but dismissed the notion that it was a “crisis.” https://t.co/vujLOssook
— NBC4 Washington (@nbcwashington) April 12, 2023
Despite stabilizing markets, Adams urged vigilance and the need to watch for other stresses in the system. The downside risks are real and remain a primary concern for the IIF and its members. Adams suggested that many of the regulators he had spoken to, including those involved in developing the Dodd-Frank and Basel III frameworks in the aftermath of the financial crisis, did not believe major regulatory changes were necessary this time.
In conclusion, while the recent banking turmoil may not have been a crisis, the downside risks are real, and the need for vigilance remains. The IIF and its members will continue to monitor the situation closely and advocate for measures that protect against systemic risk while promoting growth in the financial services industry.