Our Privacy Statment & Cookie Policy

All LSEG websites use cookies to improve your online experience. They were placed on your computer when you launched this website. You can change your cookie settings through your browser.

March 17, 2023

News in Charts: Gauging the risk of a banking crisis

by Fathom Consulting.

The failures of Silicon Valley Bank and Signature Bank in the US are the first sign of higher interest rates having a significant impact beyond the price of financial assets, and affecting the real economy. There will be more bumps in the road ahead, which we will be monitoring as we still expect most developed markets to enter a recession later in the year. So far our analysis presents four reasons why the current financial troubles, by themselves, may not be enough to tip us into a global financial crisis.

First, policymakers have learnt lessons from the past. US authorities have acted fast and provided assurances to the depositors of SVB, while the Swiss central bank has provided liquidity to Credit Suisse. The COVID-19 pandemic showed the willingness and speed of policymakers to act in the face of economic threats. Second, banks in the major economies have much healthier capital positions now than in 2007 especially the large, systemically important ones, as reflected in the chart below.

Refresh this chart in your browser | Edit the chart in Datastream

Third, the US economy, household balance sheets and the housing market — the epicentres of the 2008 global financial crisis against which trillions of dollars of derivative securities were mispriced — are in much better shape now than they were in the run up to the global financial crisis. Admittedly, corporate sector debt and government debt are higher than they were; but corporate debt is only marginally higher, and while rising government debt of the world’s reserve currency could prompt a gradual decline in the US economy’s productive potential, it is highly unlikely to prompt a banking crisis.

Refresh this chart in your browser | Edit the chart in Datastream

Want more charts and analysis? Access a pre-built library of charts built by Fathom Consulting via Datastream Chartbook in Refinitiv Eikon.

A final reason to take solace from the current situation is the decision by the European Central Bank – an institution which knows more about the banking system than the average investor – to press ahead with a 50-basis point rate increase amid the market turmoil. This bold move can be seen as a vote of confidence in the European banking system, and the relatively calm market reaction to that announcement, when a 25-basis point increase had been expected, suggests that investors have interpreted it that way.

The problems at SVB and Signature Bank relate to a large increase in borrowings in recent years, which were invested in fixed-income securities that they were forced to sell at a loss amid a flurry of customer redemptions. There may yet be more institutions in this position, but this does not seem to be the case with the US’s largest, most systemically important institutions, reflect by the big dots in the chart below.

Refresh this chart in your browser | Edit the chart in Datastream

Finally, we have charted the correlations between the share prices of systemically important banking institutions, in the minimum spanning tree diagram below. While the network this creates does not reflect actual interlinkages between assets in the financial system (i.e., lending between banks and their exposure to losses in others), it does offer a window into how contagion may spread within the system. In this regard, we can take some comfort that Credit Suisse is on the outer edge — although there is only one node between it and BNP Paribas, a central node in the global banking system according to this network.

The views expressed in this article are the views of the author, not necessarily those of Refinitiv Lipper or LSEG.

Join a growing community of asset managers and stay up to date with the latest research from Refinitiv and partners to help you inform your investment decisions. Follow our Asset Management LinkedIn showcase page.


Refinitiv Datastream

Financial time series database which allows you to identify and examine trends, generate and test ideas and develop view points on the market.

Refinitiv offers the world’s most comprehensive historical database for numerical macroeconomic and cross-asset financial data which started in the 1950s and has grown into an indispensable resource for financial professionals. Find out more.


Get In Touch


We have updated our Privacy Statement. Before you continue, please read our new Privacy Statement and familiarize yourself with the terms.x