Banking turmoil is adding to sense of looming economic ‘precipice.’ What’s next? – National
The collapse of Silicon Valley Bank and its ensuing impact on financial institutions in the United States and Europe have added to the sense of a looming economic “cliff” this week, experts say.
So far, there have been no signs of trouble in Canada’s banking system, but Canadians are more likely to face existing stressors such as inflation and high interest rates, as well as rising food and food costs, as well as a wider range of financial institutions. They are likely to feel the pain of a crisis, he adds. gas.
“I think there’s a sense that we’re getting close to this precipice where something is going to break,” said Kevin Page, president and CEO of the Institute for Fiscal Studies and Democracy and a former congressional budgetary. told Stevenson. waist block Sunday.
That could mean a recession, or at least a “significant economic slowdown,” he added, though it remains to be seen whether it will be a softer landing than seen during the 2008 financial crisis.
“I think this is a global problem,” Paige said. “In any case, I think we feel it.”
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Credit Suisse and First Republic are the latest banks to come under threat. what’s happening?
While world leaders and policy makers have assured that the global banking system is secure, they have failed to allay concerns about broader problems within the sector, prompting midsize US lender Silicon Valley Bank to The last week saw dramatic market turmoil after the and signature banks crashed.
Major U.S. banks had to provide a US$30 billion lifeline to small lender First Republic, but in the past few days all banks in the country have received a total It was seeking an emergency liquidity fund of US$153 billion.
In Europe, Credit Suisse has become the largest bank in crisis after being forced to raise US$54 billion from the Swiss Central Bank, propping up its own plummeting share price.
Interventions by Credit Suisse and First Republic did little to help both stocks continue to fall over the weekend.
Lisa Raitt, a former Conservative MP and now deputy chairman of CIBC’s global investment banking division, said Stevenson Canada’s banking system had a more diversified portfolio than SVB and other smaller banks. . safety.
But she notes that declining investor confidence has led to bank runs at an alarming rate, which has led to wider turmoil and made it difficult to predict what will happen next. bottom.
“In the past, a bank crackdown could take hours, days, or even weeks.In this case, it was almost instant,” she said.
“This is something we have to monitor from a regulatory perspective and from a perspective of what happens in the banking sector.”
A growing economic crisis is felt as Finance Minister Chrystia Freeland is set to present the government’s latest budget on March 28.
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Canada’s federal budget for 2023 will be announced on March 28: Freeland
Freeland’s office reaffirmed the government’s commitment to “prudent financial management” in this year’s budget. That’s after she said in her November 2022 fall economic statement that the government would “keep that powder dry” and reserve major spending items for the spring budget.
Inflation is showing signs of moderating this year as the Bank of Canada aggressively raised its policy rate. For the first time since it started raising lending rates last March, the Bank of Canada kept its March rate unchanged at his 4.5%. Canada’s annual inflation rate has fallen from a high of 8.1% in mid-2022 to a hefty 5.9% as of January.
Both Paige and Raitt said Freeland’s challenges ranged from continuing support for the war in Ukraine to increasing competitiveness in a growing region while addressing future needs while being too much for Canadians. also said that it is to present a budget that does not reverse that trend with a lot of bailouts. green economy.
“There is no question that Canadians are hurting…so there may be some relief,” Raitt said.
“[But]the difficulty with sending more checks and putting more money in people’s pockets, of course, is that it gives them more money to spend. They can buy more.” And that actually makes it even more likely that inflation will continue for some time.”
Page said it will be important for the government’s overall fiscal policy to be consistent with the monetary policy set by the Bank of Canada and to work together to reduce inflationary pressures.
Still, the promise of increased health care costs and addressing NDP priorities such as dental care to maintain supply and trust agreements with the Liberals could be viewed as inflationary factors. He added that spending could be inevitable.
This does not mean liberals cannot achieve a balanced budget within “the next three to four years,” Page said.
“It’s a complicated budget environment,” he said.
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