Rising interest rates have caused turmoil in the banking sector. This may prompt a slowdown in lending, but not a repeat of the 2008-09 financial crisis. This year has seen turmoil in US and European banking markets. In mid-March the collapse of Silicon Valley Bank (SVB) and Signature Bank, two regional US banks, heightened investor uncertainty, raising the risk of bank runs and financial-sector contagion. In Europe 167-year-old Swiss bank Credit Suisse— which was designated by the Financial Stability Board as one of the world’s “globally systemically important banks” was taken over by the country’s largest lender, UBS, for a fire-sale price of CHF3bn (US$3.25bn). In May California based bank First Republic collapsed; its assets were sold by regulators to JP Morgan Chase at a cost of US$10.6bn. Despite these events, we do not think that a repeat of the 2008-09 global financial crisis is likely. Bank capital adequacy ratios are generally healthy across the world for major banks. The implementation of Basel III international rules for capital and liquidity, as well as national measures, such as ring-fencing of banks in Europe, have made banks more resilient. Stricter rules for systemically important banks have also helped to prevent system-wide failures. In addition, the deposit guarantees available in the US and EU will help to prevent mass withdrawals, with the partial exception of wealthier clients whose deposits are above guaranteed limits.

In response to the latest turmoil, moreover, financial authorities have moved to protect depositors’ funds at the failed banks (even those above the usual insurance cut-off). The emergency lending facilities announced by the Federal Reserve (Fed, the US central bank) should be enough to stabilise the US banking system and avoid damaging runs on other banks. They allow banks to borrow Fed funds against the book value of their bond portfolios, to avoid the write-downs that hit SVB and Signature so hard. Massive, concerted efforts by major central banks have also reassured investors in recent weeks. According to the European Central Bank (ECB), more than 2,200 banks in Europe are now covered by the Basel III rules, though only 14 banks in the US are. Common equity Tier 1 (CET1) ratios of major European economies are higher than in 2008 and well above the 10.4% requirement of the ECB. Banks in major emerging economies, such as Brazil and South Africa, have also raised their CET1 ratios since the financial crisis, and these banks appear well-capitalised to weather the current financial worries.