Key takeaways
- Despite emergency funding and bank buy-outs, the banking crisis is far from over.
- Central banks’ inflation-reducing policies have led to rising interest rates and increased risk for banks.
- The buy-out of struggling banks has increased fears of instability in the financial system.
- The commercial real estate market is facing difficulties, leading to a wave of bad debts and making it harder for firms to borrow money.
- Bank bosses often resort to making workers pay for their failures, but can rely on central bank and state support.
The banking crisis that started years ago is not over, despite emergency funding, bank buy-outs, and bailouts. Central banks’ inflation-reducing policies have led to rising interest rates and increased risk for banks, and the buy-out of struggling banks has increased fears of instability in the financial system. The commercial real estate market is facing difficulties, leading to a wave of bad debts and making it harder for firms to borrow money. Bank bosses often resort to making workers pay for their failures, but can rely on central bank and state support.
The Effects of Central Banks’ Inflation Policies
Central banks have implemented inflation policies with the hope of reducing inflation and creating a recession that will bring prices down. The policy involves rising interest rates, which are intended to cause rising unemployment and falling wages, eventually leading to lower demand and lower prices. However, this policy has also led to instability in the financial system. Banks are now short of money and carrying risky debts on their books.
The Buy-Out of Struggling Banks
The buy-out of struggling banks by larger banks has led to increased fears of instability in the financial system. For example, when UBS bought the ailing Credit Suisse, a large chunk of its riskier debts, known as AT1 bonds, were written off, causing those bondholders to lose all their investment. This was good news for shareholders and the new owners, but it was unprecedented in financial law and spooked the bond markets. It sparked a sell-off of all kinds of debt, as investors started to worry that what happened to AT1 bonds could spread. This market turmoil has made it more expensive for banks to raise the cash they need to function, adding pressure on those already thought to be weak.
The Commercial Real Estate Market
Marxist economist Michael Roberts warns of other dangers circling, pointing out that US banks are heavily invested in commercial real estate assets, such as offices, industrial estates, and supermarket malls. However, commercial premises prices have been diving since the end of the pandemic, with many standing empty and earning no rents. With commercial mortgage rates rising from interest rate hikes, many banks face the possibility of more defaults on their loans. This is already leading to a wave of bad debts as property developers collapse. Banks are making it harder and more expensive for firms to borrow money, which makes it more likely that property prices will tumble still further.
Bank Bosses and Workers
At every turn, the financial sector faces turmoil, and bank bosses often do not have an answer except to make workers pay. However, despite the difficulties they face, bank bosses can rely on central bank and state support to bail them out. Therefore, don’t expect to see bankers jumping from windows anytime soon.
Conclusion
The banking crisis is not over, and rising interest rates, bank buy-outs, and bad debts in the commercial real estate market are contributing to a financial system in turmoil. Central banks’ inflation policies have led to instability, and the buy-out of struggling banks has increased fears of instability in the financial system. Additionally, the commercial real estate market is facing difficulties, leading to a wave of bad debts and making it harder for firms to borrow money.
Despite these challenges, bank bosses often resort to making workers pay for their failures. However, they can rely on central bank and state support to bail them out, ensuring their financial security. As such, it is unlikely that bankers will suffer the consequences of their actions anytime soon.
In conclusion, the banking crisis is not over, and it is unlikely to be resolved soon. The central banks’ inflation policies have led to instability, and the buy-out of struggling banks has increased fears of instability in the financial system. Additionally, the commercial real estate market is facing difficulties, leading to a wave of bad debts and making it harder for firms to borrow money. Bank bosses often make workers pay for their failures, but they can rely on central bank and state support to protect their financial security.
It is essential for governments and central banks to take action to address these challenges and create a more stable financial system. This may include reassessing the inflation policies, creating regulations to prevent risky behavior by banks, and ensuring that banks are held accountable for their actions. Only by doing so can we hope to avoid another financial crisis and ensure a stable and prosperous financial future for all.
