Global banking turmoil following the recent bank collapses in the US and the bailout of Credit Suisse could potentially turn into a financial crisis, according to ANZ chief executive officer Shayne Elliott.
However, suggestions that the world may be gripped by another global financial crisis (GFC) like that seen between 2007 and 2009 are premature, he opined.
“It’s too early to call it a — I mean, it’s a crisis for some, obviously, but is it a financial crisis in the typical sense? Who knows? Does it have the potential to be one? Yes, it does have the potential to be one,” Mr Elliott said in a recent interview published on ANZ’s website.
He pointed out that a financial crisis has taken place on average every six or seven years, with 39 financial crises in total over the past 250 years.
“We shouldn’t be surprised, in a funny way, that things like this happen,” Mr Elliott said.
Drawing on the saying that ‘history never repeats itself, but it does often rhyme’, Mr Elliott said that it is possible to draw comparisons to previous turmoils and crises, including the GFC.
“But actually, when you really get the microscope out, the causes and what’s going on here are really, really different than the GFC,” he said.
“GFC was fundamentally a crisis around the quality of assets and the loans that banks make, and that’s not what the risk is here. This is a different issue. This is really to do with the global war on inflation and how central banks are raising rates very quickly in order to combat that, and that has casualties.”
Mr Elliot suggested that the recent events more closely reflect the savings and loan crisis seen in the US in the 1980s and 1990s, during which a similarly heavy increase in interest rates exposed a lot of poor businesses to risk.
Another key difference between now and the past, Mr Elliot said, is that regulators and governments have drawn on the lessons learnt during the GFC.
“You’ve seen that in the last week or so in Europe and you’ve seen it in the United States that, really, the ability for regulators to come in with a sort of overwhelming force really quickly, to resolve a situation, to calm the markets down,” he said.
“The regulators have acted much more profoundly than they did in the GFC through that learning, so that’s different this time.”
The greater strength of the economy, the banking sector, corporates and households prior to the recent events was also highlighted by Mr Elliott as a key difference to the GFC, along with tighter regulation on global banks which now have more capital and more liquidity.
“That should suggest that the impacts of this will be less. Having said all that, it’s clearly not over. I don’t think you can sit here and say, ‘well, that’s all done — Silicon Valley Bank and Credit Suisse — life will go back to normal’,” he added.
“These things tend to roll through over a long period of time … history says it’ll take many, many months, if not a year, for these things to roll through the economy.”
Mr Elliot noted that it was almost certain that regulators around the world would be looking into new measures to protect depositors and the economy from change going forward.
