The sudden spike in tensions for banks has raised questions about whether major central banks will continue to pursue aggressive interest rate hikes.
| Stress in the banking sector is being closely monitored for its potential to trigger a credit crunch, a US Federal Reserve policymaker said on Sunday , as a European Central Bank official also flagged a possible tightening in lending.
“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 on Sunday on CBS show“It definitely brings us closer,” said Mr Kashkari, who has been among the most hawkish Fed policymakers in advocating higher interest rates to fight inflation.
“Our impression is that they will lead to an additional tightening of credit standards in the euro area. And perhaps this will feed through to the economy in terms of lower growth and lower inflation,” he toldAfter the Swiss government engineered the rescue takeover of Credit Suisse by Zurich-based rival UBS, Germany’s Deutsche Bank moved into the investor spotlight.and the cost of insuring its bonds against the risk of default jumped sharply and the index of top European bank shares fell.
The Fed raised interest rates a quarter of a point last week but opened the door to pause further increases until it is clear how bank lending practices may change after the recent collapse of SVB and New York-based Signature Bank.
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