Dhe banks are worrying economists again. The collapse of the Silicon Valley Bank in America and the takeover of Credit Suisse by UBS in Switzerland have raised questions about how well the financial institutions are protected – and whether there is a risk to the economy.
A large majority of German economics professors does not see the danger of a serious financial crisis like in 2007 and 2008. On the other hand, one in six respondents does confirm this risk. However, 41 percent expect that the current developments in the financial system will burden the growth of the German real economy in 2023. 44 percent do not expect it.
The assessments are among the results of the new economist panel of the Munich Ifo Institute and the FAZ, which this time dealt with the situation of the banks and shows a shared response. 132 economics professors from German universities took part in the regular survey from March 23 to 30, although not all participants answered every question.
need for further reforms
The researchers are divided on the expectation of whether other systemically important banks will run into serious liquidity problems after Credit Suisse. 36 percent expect it and 38 percent don’t. 26 percent say they don’t know. Similarly ambivalent is the question of whether the precautions taken after the financial crisis to make banks more solid and to protect taxpayers from liability were unsuccessful: 48 percent affirmed this and 42 percent denied it.
Alexander Dilger, a professor from Münster, believes that further reforms in the financial system and especially in the banking sector are necessary. “Not enough has been learned from the financial crisis,” writes the participant in the survey in the free comment field. The Bremen economist Wolfram Elsner sees the wave of panic among depositors being overcome by extraordinary state intervention in America and Switzerland: “Small and medium-sized banks could still be at risk.”
Alfons Weichenrieder, Professor of Finance at the University of Frankfurt, states: “The bonuses paid at Credit Suisse, despite mediocre profits, indicate that the sector is still a self-service shop that, in case of doubt, is at the expense of taxpayers.”
Support for the ECB President
Christine Lagarde, President of the European Central Bank (ECB), has around half the professors supporting her for saying the euro area banking sector is resilient and in a strong capital and liquidity position. Nine percent of the economics professors surveyed agree with her, and 37 percent tend to agree.
However, 22 percent are neutral and 8 percent against. 21 percent tend not to agree. The verdict on whether central banks should change interest rate policy to combat inflation due to developments in the financial system is clearer. 67 percent want further rate hikes and 21 percent are in favor of keeping rates constant. In the last meeting in mid-March, the ECB raised the key interest rate again to 3.5 percent. The next rate meeting is in early May.
After the difficulties of foreign banks and above all the price losses of Deutsche Bank, even Federal Chancellor Olaf Scholz (SPD) strengthened the German financial institution a week and a half ago. “There’s no need to worry about anything,” he said. The majority of the professors surveyed are calling for consequences from the new difficulties among the financial institutions: 72 percent are counting on increasing the equity ratios for European banks in the medium term once the current turbulence has been overcome. 76 percent advise banks to be obliged to back government bond portfolios with equity in the future.
According to the Bamberg economics professor Marco Sahm, the mandatory equity ratio is still far too low. “This omission should now be made up for as soon as possible,” he writes. Ulrich Blum, Chair of Economic Policy and Economic Research at the University of Halle, demands that if banks have to be rescued by states, there must also be a limit on the size of the bank in relation to the state’s economic performance: “The new UBS is dangerous to the public.”