Banking Stress Puts U.S. And Europe On Watch For Credit Crunch

• Stress in the banking sector is being closely monitored for its potential to trigger a credit crunch, a U.S. Federal Reserve policymaker said on Sunday, as a European Central Bank official also flagged a possible tightening in lending.
• Authorities around the world are on high alert for the fallout from recent turmoil at banks following the collapse in the United States of Silicon Valley Bank (SVB) and Signature Bank and the rescue takeover a week ago of Credit Suisse.
• Last week ended with indicators of financial market stress flashing. The euro fell against the dollar, eurozone government bond yields sank and the costs of insuring against bank defaults surged despite assurances from policymakers.
• In the latest effort to calm investors, the U.S. Treasury said on Friday that the Financial Stability Oversight Council agreed that the U.S. banking system is "sound and resilient".
• "What's unclear for us is how much of these banking stresses are leading to a widespread credit crunch. That credit crunch would then slow down the economy. This is something we are monitoring very, very closely," Minneapolis Fed President Neel Kashkari said Sunday on the CBS show "Face the Nation."
• Meanwhile, in Europe, the ECB believes that recent banking sector turmoil may result in lower growth and inflation rates, its vice president Luis de Guindos said.
• After the Swiss government engineered the rescue takeover of Credit Suisse by Zurich-based rival UBS, Germany's Deutsche Bank moved into the investor spotlight. Shares in Germany's largest bank fell 8.5% on Friday and the cost of insuring its bonds against the risk of default jumped sharply and the index of top European bank shares fell.
• The sudden spike in tensions for banks has raised questions about whether major central banks will continue to pursue aggressive interest rate hikes to try to bring down inflation and prompted some to speculate on when rates will start to fall.

(Source: Reuters)