The economist Nouriel Roubini points out the main factors that pushed the country’s banking system to the crisis situation they are going through today
By iProfessional
02/04/2023 – 21,17hs
Most US banks are “technically near insolvency” and hundreds of them are already “totally insolvent”, says the renowned economist Nouriel Roubini, in his new grim assessment of the situation of the banking sector in the North American country.
In an article for Project Syndicate, the analyst, known for predicting the 2008 global financial crisis, makes his case just weeks after US banking was rocked by the collapses of Silicon Valley Bank and Signature Bank. The turmoil spread to Europe, sinking Switzerland’s second-biggest lender, Credit Suisse, which was forced to merge with the country’s leading bank, UBS.
What factors impacted on US banking
Nicknamed ‘Doctor Catastrophe’ on Wall Street for his penchant for pessimistic predictions, Roubini explains that the economic downturn related to the coronavirus pandemic exacerbated underlying vulnerabilities in the US financial system, leaving many financial institutions in a precarious situation. .
Last year, the Fed raised its benchmark interest rate to between 4.75% and 5%
The expert points out that the current situation has been induced by factors such as the high level of indebtedness of companies and householdsas well as the overvaluation of assets such as stocks and real estate.
Roubini stressed that the hawkish policy pursued by the US Federal Reserve (Fed) has inevitably increased the pressure on lenders’ profitability by reducing the difference between the interest they earn on loans and the interest they pay on loans. deposits. The risks taken by lenders in an attempt to generate more profit amid rising interest rates have made them more vulnerable to potential losses, the analyst said.
Last year, the Fed raised its benchmark interest rate to between 4.75% and 5%, the highest since 2006, from near zero, increasing the risk of asset depreciation on bank balance sheets. many financial institutions.
