If you want to measure the magnitude of the financial crisis that the world is experiencing at the moment and its scope, It is enough to observe what has happened the last two Sundays to measure and make sure that the world is experiencing the worst crisis in 15 yearssince that of 2008 whose main sign was the collapse of Lehman Brothers, which devastated the global economy.
Two intense weekends
Last weekend, in an action almost unprecedented and not seen in decades, the joint action of the Federal Reserve Bank of the United States (Fed), the Department of the Treasury of that country, as well as the Federal Deposit Insurance Corporation (FDIC ), decreed the bankruptcy of Signature Bank, after the collapse of Silicon Valley Bank (SVB), and also designed an intervention mechanism in the US markets to provide liquidity to the system and reduce pressureswhich in any case continued and almost caused the collapse of the First Republic Bank, an institution that had to be rescued by the large banks of the system, with deposits of up to 30,000 million dollars, to provide it with liquidity.
By the end of the week, this bank’s stock had plunged more than 70 percent as of March 7, the closing day prior to the collapse of the SVB and the start of this banking crisis.
But the crisis deepened and, if something was missing to be global, the Credit Suisse factor arrived. The Swiss institution was already in trouble, but with the warning from the Swiss bank’s main shareholder, the Saudi National Bank, that it would no longer inject more liquidity into the troubled Swiss bank, Credit Suisse’s nosedive did not happen. wait. During the week the Swiss National Bank, the country’s central bank, decided to support the institution to avoid collapse, with a loan of up to 54 billion dollars to which the bank agreed immediately, as a sign of the lack of liquidity.
But the pressures have not abated, apparently it was a matter of time before the bank completely collapsed and this recent weekend was the same or more intense than the other, because now national and global actions were registered.
Thus, over the weekend the UBS bank agreed to buy Credit Suisse for 3 billion dollars, irrefutable proof that the fall of this bank was imminent, the problem is that Credit Suisse is not or was not just any bank, it is considered by the markets as one of the 20 institutions with systemic risk, that is, with the possibility of generating a global financial crisis with its fall, as in fact it was already generated despite the fact that over the weekend in Switzerland both the banks of that country and the government itself carried out intense negotiations to avoid the collapse, that finally appeared in the figure of the sale “in cheap” of Credit Suisse.
The central banks perceived something, hours before they began operations in the global markets in Oceania (generally on Sundays they begin operations in that region of the world), they decided to carry out an action also not seen in many years, since 2008 when they also had to intervene in the markets with a “tsunami” of liquidity to reduce the pressures and prevent the crisis from growing more than it did.
Swaps and wave of liquidity
This Sunday the central banks of the industrialized world: The Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, the Federal Reserve Bank and the Swiss National Bank announced that they will intervene in the markets through a coordinated action to improve the provision of liquidity through permanent agreements of liquidity exchange lines in US dollars.
In other words, they will provide liquidity to the world through the global currency, which as we know is the dollar. In this way, the market in which pressures are registered will be flooded with liquidity in dollars. The central banks did not mention amounts, so that, by not doing so, they left the door open for the necessary resources to be injected.
This type of mechanism among the aforementioned central banks had already existed for many years, at least since that 2008 crisis, but they had one characteristic, their expiration date was 7 days, and under the new conditions it was decided to modify said date to only one day; that is to say, not only will there be all the necessary liquidity but every day, this represents a radical change.
This action by central banks is not recorded every day, in fact, something like this was not recorded for at least 15 years. Therefore, it is a fact that the world has entered a new phase, that of another global financial crisis.of which we do not yet know the consequences.
The Fed will speak this week, Banxico the next
As if something were missing, the week that begins will have a very relevant element for the markets, which occurs just at the time of a crisis like the one we are experiencing and in which central banks have taken a leading role.
The Fed has a monetary policy board. begins on the 21st and ends on March 22 with the announcement that will be made regarding the interest rate. Before the start of the banking crisis in the United States, it was pointed out that the Fed had entered into a dilemma, now with the extended crisis, the route it will take is even more uncertain: some analysts still favor a 25 basis point increase in the rate of interest, and they say that the banking crisis cannot cause the fight against inflation to be forgottenbut others consider that the Fed and the central banks have no alternative but to stop raising their interest rates at least for a while, given the problems that have occurred in the banking system.
In the midst of the global banking and financial crisis scenario, at the end of the month the Bank of Mexico will also make its decision on monetary policy; During the Banking Convention, Governor Victoria Rodríguez Ceja sent the signal that the institution could increase the rate by 25 base points. However, something is an irrefutable fact, Banxico will have to know and evaluate the decision of the Fed known a week beforesurely what is announced this coming Wednesday will have a great weight in the decision of our central bank.
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