Bank bailouts soothe global financial crisis fears.

Multi-billion Dollar Lifelines Injected into Troubled Banks! Has the Global Financial Crisis Been Fully Averted?

In the wake of the recent collapse of two mid-size U.S. lenders, investor confidence has been rattled, propelling concerns about a global financial crisis. However, recent developments indicate hope, as large U.S. banks have injected $30 billion in deposits into First Republic Bank (NYSE: FRC), coming to the rescue of the troubled lender.

Furthermore, with Swiss bank Credit Suisse taking up an emergency central bank loan of up to $54 billion to shore up its liquidity, the panic about a global banking crisis has somewhat abated. Asian stocks were mostly higher in morning trade, tracking Wall Street’s relief rally.

Recovery in Banking Stocks

Following the multi-billion dollar lifelines, First Republic Bank’s stock closed up 10%, boosting sentiment in battered stocks. However, the bank’s shares fell 18% in after-market trading when the bank suspended its dividend. Despite the challenges, the stock is projected to make a full recovery soon.

“I don’t think we are in the crux of a global financial crisis, balance sheets are much better than they were in 2008, banks are better regulated,” said Karen Jorritsma, head of Australian equities, RBC Capital Market. “But people are concerned that the contagion risk is real, and that rattles confidence.”

Central Bank’s Role

Against the market turmoil, the European Central Bank pressed forward with a 50-basis-point rate hike, despite the financial markets turmoil, arguing that euro zone banks were resilient. Furthermore, the move to higher rates should bolster their margins.

Focus on Federal Reserve’s Policy Decision

Investors now await the Federal Reserve’s policy decision next week, with concerns about whether it will stick with its aggressive interest rate hikes as it seeks to get inflation under control. However, authorities in Singapore and Australia have reiterated that they are monitoring financial markets but confident local banks are well capitalized and able to withstand major shocks.

Impact on Banking Stocks Globally

Following the collapse of Silicon Valley Bank last week due to bond-related losses that piled up when interest rates surged last year, global banking stocks have taken a hit, raising questions about what else might be lurking in the wider banking system.

However, the recent multi-billion dollar lifelines for troubled banks have breathed hope in the banking sector, with the biggest U.S. banking names, including JPMorgan Chase & Co (NYSE: JPM), Citigroup Inc (NYSE: C), Bank of America (NYSE: BAC), Wells Fargo & Co (NYSE: WFC), Goldman Sachs (NYSE: GS), and Morgan Stanley (NYSE: MS), coming together in the rescue package to shore up support for First Republic. The deal was put together by top power brokers, including U.S. Treasury Secretary Janet Yellen, Federal Reserve Chairman Jerome Powell, and JPMorgan Chase CEO Jamie Dimon, who discussed the package on Tuesday, according to a source familiar with the situation.

Emergency Liquidity

Credit Suisse became the first major global bank to take up an emergency lifeline since the 2008 financial crisis as fears of contagion swept the banking sector, raising doubts about whether central banks will be able to sustain aggressive rate hikes to rein in inflation.

Rapidly rising rates have made it harder for some businesses to pay back or service loans, increasing the chances of losses for lenders already worried about a recession. Policymakers have tried to emphasize that the current turmoil is different from the global financial crisis 15 years ago, as banks are better capitalized, and funds more easily available.

Conclusion

In conclusion, a global financial crisis may not be fully averted yet, but the multi-billion dollar lifelines have bolstered investor confidence, propelling recovery in battered banking stocks. With the banking system better regulated, balance sheets much better than they were in 2008, and authorities keeping a close watch on financial markets, prospects for a full recovery look optimistic.#Bank #lifelines #ease #global #financial #crisis #fears #Reuters