Busted: Bankers and The Global Economy

March 19, 2008

International Banking Mood Jittery

Recent media and banking chatter reflects a jittery mood surrounding U.S. and U.K. banks. The latest world focus has been on Federal Reserve moves in the U.S. as well as the collapse of investment bank Bear Stearns last Friday. To calm the jitters, the Bank of England made a statement to speculations saying that it isn’t aware of a problem at any British bank. “No meetings have taken place or been scheduled to discuss problems with any institution in the UK,” a BoE spokesman said. The good news continues. It has been a largely uneventful week in the U.S. so far, which is promising. U.S. investors have been fearful of more banking failures, particularly with investment banking. Numbers recently released by those banks have calmed the concerns of many.

The international G-10 central banks have made special internal arrangements to insure against liquidity issues on a national basis.

It would be wise to keep in mind that the collapse of Bear Stearns was unexpected and took only one day. The published figures and stock market prices were up until the investment bank run. Internal banking instruments and securities packages have caused internal instability, chiefly in the U.S. banking system. Because banks have fearfully refused to loan funds to one another, the Federal Reserve has been forced to step in with creative financing in response to the situation. The bottom line is that not one single person actually knows the extent of the risk to the U.S. banking system. Likely, because  the huge volume of these creative banking securities were originally designed to make big money, most banks, especially investment banks are probably greatly overvalued because of the large volume of these securities held. The banking situation continues to be dangerous for investors. This has been recently reflected by investor response in the U.K. as more investors invest in cash deposits. Doubtless, bankers are watching their numbers very closely.

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1 Comment

  1. Insightful article.

    Pingback by digitalflow — April 15, 2008 @ 8:04 am


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