Recently, turmoil in the banking world has once again intensified due to problems of Swiss bank Credit Suisse. Ivo Arnold and Casper de Vries, Professors of Monetary Economics at Erasmus School of Economics, discuss the phenomena in today's banking world.
In addition to the problems in Europe, with Credit Suisse as the protagonist, the United States is also experiencing a time of turmoil: Silicon Valley Bank (SVB) collapsed a week ago. In response to mounting uncertainty, a timely safety net has been stretched for US banks by US authorities. While positive reactions prevail, Arnold and De Vries share their concerns about this helping hand. The amount of help the banks now receive greatly restricts market forces.
On the contrary, the help banks receive increases the risk of the banking system, according to the professors. ‘Because of the way banks are bailed out, things go wrong every time because the banks take more and more risk’. ‘You must hurt every now and then, to make sure that risks are not inflated. All banks now think: we will be bailed out anyway,’ De Vries adds.