Monterrey, NL. Under the current situation of a possible recession in the United States, the unemployment rate remains at historical lows. What is beginning to be seen are some accidents in terms of financial health, only a few days ago the ghost of bank closures began in the world, such as the closure of Silicon Valley Bank, Signature and Silvergate, where it is thought that they are effects focused, and can clearly put some relevant alerts.
This was commented by Luis Arturo Flores Sánchez, director of Investment Strategy, Santander Asset Management, in a meeting with the College of Economists of Nuevo León.
He explained that central banks play a very important role and are portrayed as the bad guys in the movie for raising interest rates; however, they have done everything possible to maintain a financial balance, and there are different measures that can help contain inflation that are beyond their responsibilities. If inflation rises, the prescription is to increase interest rates, even though that has side effects like unemployment.
The Silicon Valley Bank case is important, he explained, because it shows some of the reflections of high interest rates in different countries. “I would remember that in 2008 and then in 2013 the Basel agreements for cases of bank insolvency were applied in Europe and America, not in the United States, especially in the Trump administration, some measures were relaxed, in cases of the big banks did have strong restrictions, but not in the medium or small banks”, he specified.
The Basel III agreement, approved in December 2010, addressing the fear of the domino effect that bank insolvency could cause, recommended tightening the criteria and increasing the quality of the volume of capital to ensure its greater capacity to absorb losses . The modification of the risk calculation criteria to reduce the level of real exposure, as well as to establish capital buffers that make it possible to face the change in the economic cycle.
“This matter was discussed at the Banking Convention, I agree that the banking system (of Mexico) is well capitalized and that it is very resistant, remembering that with the current system we have gone through crises like those of 2008 and 2009, the European crisis in 2013, the Covid-19 pandemic in 2020. The reality is that the banks, with small exceptions, have performed quite well, which is why I believe that there is solvency of the banks”, stressed the manager.
However, at this time the financial system has to be rethought, since the inflation rates continue to be worrisome, and it should be thought that the banks are going to have to continue raising their interest rates, he said.
Next week, the Federal Reserve meeting will take place, and “it is very probable that a new rise in interest rates will be agreed (…) and what they decide will be the most important thing for their interest rates, (so) there would have to be greater prudence, depending on the problems that lie ahead,” he warned.
For example, that future rate indicators for the end of this year could begin to lower their interest rates; on the other hand, that the dollar has not been able to stabilize this year, unlike 2022, when it was a story of dollar strength throughout the world.
He assured that there are enormous differences with what happened in 2008 and 2009, since in July 2008 inflation was 5.60% in the United States due to the housing crisis, and in December of that year, it was 0.09 percent.
In January of this year, inflation was 6.4% and the Federal Reserve’s goal is to reach 2 percent.
Mexico has good fundamentals such as the proper functioning of the Central Bank, but a very important challenge for the country will be risk aversion, because although it maintains its investment grade, the share of bond holdings by foreign investors has not yet been recovered. mentioned.
Luis Arturo Flores pointed out that given the possible start of a recession, market sentiment can change in a few months, when things begin to move from one side to another, as in 2008 when “an addiction to the liquidity of the markets in the United States.
“The way to solve liquidity problems in central banks has not only been by moving inflation but liquidity, moving their speculation mechanisms, this causes financial cycles to be shorter, if you add to that the intensive use of technology,” he stressed.
He highlighted that the Mexican peso has been very resilient in recent months, and its resistance has even lasted longer. In 2021, the peso has been the most successful currency, “a large part of this is due to the actions of the Bank of Mexico in recent years it has been the correct one”.
Given the experience that Mexico had in the 80s and 90s, in July 2021 there were still low interest rates and nine months before the Federal Reserve raised its rates, the country already had them at a level of 6%, which fostered exchange rate stability.
He considered that “the main change in interest rates will probably occur, not necessarily in economic activity because Mexico, financial inclusion is low, here it is at 50%, while in the United States it is almost 100% and this is reflected in exchange rate stability.
In his opinion, the situation of public finances remains in order, because the debt as a percentage of GDP is 50% and it does not make much noise to anyone, while other emerging economies are at 65 or 70% of GDP in their public debt .