Global Markets Overview: April 2023

Observations on the recent banking turmoil:

• What started with a large but relatively unknown US bank – SVB – which focused on lending to technology companies, spread to Credit Suisse, and then back to First Republic Bank in the US.
• It is not surprising that the rapid tightening in monetary conditions over the last year is continuing to cause funding, profitability, or solvency strains. These were already evident in various sectors, e.g., residential property, technology companies, and some emerging countries.
• The big macro question from the financial events of the last month is if this is likely to repeat or spread into a system-wide banking crisis. While uncertainty is high, our view is this is unlikely in the short-term. Bank capital positions are stronger than they were in 2008, as a direct result of the actions taken after the financial crisis. While some banks will have losses from sharply higher bond yields, this is only a solvency issue if they don’t have the capital to tolerate those losses and/or they are forced to sell those bonds before redemption. The most recent datapoints on bank deposit flows and use of emergency funding are encouraging and supportive of this view.

Contact

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David Hoile

Global Head of Asset Research at WTW

David is the Global Head of Asset Research at WTW, responsible for economic and capital market research. He also is a member of the Investment Assumptions Committee, who help guide investment policy globally.

email Email phone +44 20 7170 2144

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