The banking turmoil subsided last week as an attack by some hedge funds on Deutsche Bank on Friday, March 24, had no repercussions. The restructuring of Germany’s largest bank, experienced by a series of scandals and mismanagement, has strengthened it ahead of recent events.

Citigroup said it was not wise to target Deutsche Bank, while many analysts point out that this is not the new Credit Suisse. Thus, European banking stocks have rebounded in recent days, with investors seemingly convinced by supervisory assurances that there is no risk of another major crisis like the one in 2008.

The fact that the systemically important banks in the euro area are highly capitalized and liquid, and subject to tight supervisory scrutiny, makes this confidence stronger. The same applies to Greek banks, whose progress and resilience were highlighted by the rating agency Moody’s in the middle of the week.

However, despite the improvement in the climate, fears and concerns in Europe are likely to persist for some time, as European markets are directly dependent on developments in the US, where other smaller banks are also reported to be at risk. Therefore, there is uncertainty that could affect economic development on both sides of the Atlantic, both in terms of growth and interest rates.

Officials at the European Central Bank and major financial houses believe market turmoil could force banks to be more stingy in lending, limiting growth while necessitating further interest rate hikes. Isabelle Schnabel, one of the ECB’s chief monetary policy advisers, noted, however, that it is completely unknown to what extent this will happen.

The ECB on March 16 raised its key interest rate by half a percentage point, bringing the deposit rate to 3%, but did not give guidance on further policy amid the unrest, noting that decisions will be made based on data that will be applied at each stage. meeting. However, most of his board members, speaking in recent days, noted that there is room for further improvement. ECB Chief Economist Philip Lane has made it clear that interest rates will continue to rise, barring major shocks.

However, analysts believe that the increase in interest rates will be smaller than expected before the banking turmoil. For example, UBS expects the ECB to make two more rate hikes in May and June, with the deposit rate peaking at 3.5%.

Goldman Sachs forecasts that tighter bank lending criteria could cut eurozone GDP growth by 0.3% this year, but that forecast is also subject to a large degree of uncertainty.

Source: RES-IPE