The recent bank failures and frenzy have caused turmoil in the financial world, and the risks of financial crises are enormous. Anders Borg emphasizes the importance of avoiding financial crises as they tend to follow banking crises historically. He states that banking crises create major social crises that shake up societies. The Riksbank has raised the key interest rate in the hope of curbing the high inflation which has made the economy more challenging for households and companies. However, continued interest rate increases can lead to worse ripples in the water. Borg believes that the banking crisis is more dangerous than inflation, and although he wants to reach the inflation target of 2 percent, he can live with it taking a few years. Annika Winsth, Chief Economist at Nordea, agrees that a financial crisis is much more challenging to handle than high inflation. A financial crisis can lead to very weak economic growth for several years, resulting in companies failing, and people losing jobs. The Financial Services Agency’s latest section on “Bank Bubbles” is available on SVT Play.
The bank failures and bank frenzy of recent weeks have created turbulence in the financial world. A banking disaster rarely comes alone and the risks of financial crises are enormous.
Inflation target 2 percent
Historically, banking crises have led to financial crises, and this must now be avoided, according to Anders Borg.
– A banking crisis is a major social crisis that really shakes up a society, he says.
In the hope of curbing the high inflation, the Riksbank has raised the key interest rate, which has made the economy more difficult for many households and companies. It is not an optimal situation and, according to Borg, continued interest rate increases can create worse ripples in the water.
– Of course, I also want to reach the inflation target of 2 percent, but I can live with it taking a few years. The banking crisis is more dangerous than inflation, he says.
Easier to deal with high inflation
Annika Winsth, chief economist at Nordea, agrees and explains in the Economic Agency that a financial crisis means very weak economic development for many years – where companies fail and people become unemployed.
– It is much more difficult to deal with a financial crisis than to support those who cannot afford to pay for food or electricity during high inflation, says Annika Winsth.
See the latest section of the Financial Services Agency “Bank bubbles” on SVT Play.