Because of the tense situation in the banking sector, the US government is promising further help for struggling financial institutions. Treasury Secretary Janet Yellen stressed in Washington on Tuesday that she was willing to provide additional support measures. This initially brought great relief to the financial markets. However, the economic outlook in Germany has deteriorated in view of the recent banking problems.
Impacted by the turbulence on the financial markets, the economic expectations of experts have clouded over considerably. The mood barometer of the Mannheim research institute ZEW fell in March compared to the previous month by 15.1 points to 13.0 points, as reported by the Center for European Economic Research (ZEW). Analysts had only expected a drop to 15.0 points.
Previously, the indicator had risen five times in a row. “The international financial markets are under a lot of pressure,” said ZEW President Achim Wambach, explaining the decline. “This currently high level of uncertainty is also reflected in the ZEW economic expectations.” The assessment of the earnings development of the banks has deteriorated “quite considerably”.
The US government is promising further aid
US Treasury Secretary Yellen defended the government’s previous support measures during a speech in Washington on Tuesday: “Our interventions were necessary to protect the broad US banking system”. At the same time, she emphasized that the government considers further aid to be appropriate if there is a renewed flight of deposits and the risk of contagion in the financial sector.
Yellen’s speech was well received on the stock exchange: the shares of the First Republic Bank – currently the largest US crisis – increased by more than 40 percent. The day before, they had fallen 47 percent to a record low. In the Silicon Valley and Signature bank failures, the US government had guaranteed deposits in excess of the $250,000 legal guarantee limit. Yellen has now signaled this in the event that other banks should fail.
Investors on Europe’s stock markets also continued to suppress bank worries around Tuesday – both the leading German index Dax and the EuroStoxx 50 went up significantly. The eyes on the stock exchange are already on the interest rate decision by the US Federal Reserve on Wednesday (7:00 p.m. CET). The Fed now has to weigh up the balance between calming concerns in the banking sector and fighting high inflation. In view of the turbulence in the banks, many stockbrokers are opting for a less tight monetary policy.
Meanwhile, Sweden’s largest pension fund, Alecta, has sold all of its stakes in ailing US bank First Republic at a hefty loss. According to Alecta boss Magnus Billing, the losses amounted to 7.5 billion Swedish crowns (almost 676 million euros). The uncertainty about the future of the bank was too great, Billing said, according to a statement.
