2023-05-08 13:56:07
AAccording to the chief economist of the insurance group Allianz, investors in the financial markets should be prepared for months of market adjustments that are overshadowed by the danger of a new “financial accident”. “We have all the ingredients for a so-called Minsky moment,” Ludovic Subran told Bloomberg TV on Monday. The economist Hyman Minsky had described situations in which heavily leveraged financial markets suddenly collapse. “You see it everywhere, these liquidity pools or liquidity bottlenecks are slowly becoming visible.”
As the US regional bank crisis has raged, others have spoken out in this regard. However, Subran’s remarks underscore that the circumstances that led to the panicked investor flight from bank stocks in the US and the collapse of Credit Suisse in Europe have not gone away. “Obviously, commercial real estate and the vicious circle with regional banks in the US are worrying,” he said. “I’m concerned about the mispricing of corporate credit risk — especially given that high yield credit risk premia are still too small to be honest. For me, the focus is also on financial intermediaries outside of the banking sector.”
With this, Subran alludes to the so-called unregulated shadow banking sector, which also includes the hedge funds that rely on risky strategies. With the regulation of the banks after the great financial crisis of 2008, many financial transactions migrated to this area, which international financial supervisors have been observing with great concern for some time.
More moments of discharge likely
Adding to the current tensions has been the global monetary policy shift toward aggressive rate hikes, said Subran, who used to work at the World Bank and France’s finance ministry. However, there is more to it than that. “The very abrupt tightening is a problem for everyone. But there is also the layer of mismanagement of risk,” he said. “A new financial crash could come from the banking sector, but also from some very heavily commercial real estate hedge funds,” Subran said. However, it is also possible that a problem arises from a mixture of these two factors.
“We do not believe that we are in a repeat of the global financial crisis,” said the Allianz chief economist. “But I think these moments of discharge, of catharsis, will certainly become more frequent in the coming months.”
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