Cliff Taylor: We are seeing echoes now of the run-up to the 2008 crash
, even if it has been in trouble for some time. This weekend urgent efforts are underway to engineer a merger with the other big Swiss lender, UBS. Maintaining the confidence of depositors is, as ever with banking, the vital goal.
And who would have foreseen that as it increased interest rates again this week, the European Central Bank would have to pledge that it stands ready to provide liquidity to the euro zone banking sector if needed, even though it believes the sector is resilient and well-capitalised? With ECB vice-president Luis de Guindos reportedly telling EU finance ministers in private that some euro zone banks might be vulnerable, this story does not look like a one-week wonder.
Sometimes we think that “the markets” know all this stuff. But the swings in expectations of future interest rates were so sharp this week that it is clear that traders are as surprised and confused as the rest of us.
The other lesson of the week is that big organisations respond to incentives. The ECB decided to push ahead with a half-point increase in interest rates this week because its key mandate is to get inflation down to 2 per cent. Its president, Christine Lagarde, said it was closely monitoring the “transmission of monetary policy”, which is jargon for saying it hopes the higher interest rates are passed on to businesses and personal borrowers.
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