Status: 03/20/2023 12:54 p.m
After the rescue of Credit Suisse, the federal government and supervisory authorities are emphasizing the resilience of the German and European financial system. DIW boss Fratzscher pointed out that financial crises are “hardly predictable”.
The federal government has welcomed the rescue operation for the major Swiss bank Credit Suisse. This serves to “restore orderly market conditions and ensure financial stability,” said a spokeswoman for the Federal Ministry of Finance. The German financial system is stable. The German and European supervisory authorities observed the situation “attentively and carefully”.
According to a government spokesman, Chancellor Olaf Scholz said that legislators and banking supervisors in Europe had learned from the 2008 financial crisis and had tightened banking regulations considerably. “The German banking system is therefore well positioned.”
The financial supervisory authority BaFin also considers the German financial system to be resilient. “The German financial system continues to be stable and robust,” said a spokesman for the Federal Financial Supervisory Authority on request. BaFin keeps an eye on current market developments and takes them into account as part of its ongoing supervision.
“Robust” capitalization of European banks
The banking regulator of the European Central Bank (ECB) assured that the European banking system is “resilient”. The ECB announced that the institutions’ capital resources and liquidity were “robust”. She welcomed the “comprehensive” measures taken by the Swiss authorities on Sunday to ensure financial stability. The Central Bank’s Banking Supervision is responsible for 113 significant banks in the euro area.
The President of the German Institute for Economic Research (DIW), Marcel Fratzscher, pointed out that the crisis surrounding Credit Suisse and the bankruptcy of California’s Silicon Valley Bank could have an impact on the German economy. “At this point in time, no one can rule out the possibility of a banking crisis in Germany and Europe with significant costs for growth and prosperity,” Fratzscher told the Reuters news agency.
Fratzscher warns of panic reactions
“Financial crises are by definition hardly predictable,” Fratzscher continued. However, the systemic risks in the financial system are now significantly lower than after the Lehman bankruptcy in September 2008. Many financial institutions have more equity and security. “My biggest concern today is that there will be panic in the capital markets and among investors and savers, since nobody knows which banks could still get into trouble,” warned Fratzscher.
“Such a panic could lead to so-called self-fulfilling expectations. This means that concerns about the liquidity of banks endanger the existence of those banks that would otherwise be solvent.”
The crisis of confidence at Credit Suisse initially sent shock waves through the financial markets worldwide. Rival UBS then took over Credit Suisse on Sunday for three billion francs; the Swiss central bank also pledged aid of up to CHF 100 billion.
The ECB, the US Federal Reserve and other major central banks also announced a “coordinated measure” to facilitate dollar banking to calm financial markets.