Although it might seem obvious, it is still relevant that the first and great consequence of the banking crisis that nations like the United States, Switzerland and Germany are experiencing today, It will be the credit crunch.
It is relevant because, automatically, this credit collapse will be reproduced throughout the world; the current crisis is not similar to that of the collapse of Lehman Brothers, but it will also generate negative global consequences as in those days.
Avalanche of negative opinions for the year
The vast majority of analysts Officials and market operators agree that the banks are going to close the credit window completely or in parts.
A big consequence will be reflected in the form of recession, that is also a fact.
Last week Paul Krugman, Nobel Prize winner in economics, considered that the problems in the banks of different industrialized nations will have a disinflationary effect and that will allow central banks slow down the rate hike rate or stop it outright.
But, since depositors move their money from small banks to large banks that are less likely to lend because they have more restrictions in their internal policies when there is a situation like the current one, bank credit will contract and there will be effects on growth.
Larry Summers, former Treasury Secretary, also speaking last week, said that the fact that savers won’t lose their money in banks is very positive. However, the credit crunch will be a reality for a while.
He noted that while the Trump-era regulatory changes were not the best intentions or advice, they are not the reason for the current problems. They are due to poor bank management and poor supervision by the Fed. He believes that the SVB was an “outlier”, an isolated case, but that extreme cases tend to show paradigmatic issues. Henceforth, the current facility to open or close an account “with a click”, opens a new world in terms of risk and how “sticky” the deposits are.
For his part, Mohamed El-Erian, president of Queen’s College Cambridge and adviser to Allianz, the banks had poor supervision and, therefore, several have failed.
This will try to reverse with greater vigilance, adjustments to regulatory policies, and in the meantime, credit crunch at most banks, especially large institutionswhich are the ones that largely determine the credit flows in the economies.
How expensive will the credits be?
If we consider that between 2020 and the beginning of 2022 the reference rate in the United States was close to absolute zero, and despite the fact that not all loans were lent at said rate, a historically low cost was recorded.
It is estimated that there were corporate loans at 1 percent per year, something never seen before.
But, today the reference rate in the United States is close to 5 percent, pushing loans to at least 4 times the value they registered just a year ago.
In the case of Mexico, three years ago the reference rate was 4 percent, while today it is at 11.25 percent and with the possibility of going up more this week.
We are talking about an additional cost of 7.25 percentage points.
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But credit policies in circumstances like the current ones are global; that is to say, the banks that operate in Mexico and that have foreign parent companies will also reduce the pace of their credit activity.
The topic is relevant for several reasons, especially because the largest banks in the country, those that dominate the credit market, are subsidiaries of foreign institutions.
In short, lending activity will be slow this year, including in Mexico and, among other things, because it is estimated that the world’s most important central banks will raise their rates at least in the first part of the year, before pausing afterwards. the remainder of 2023, unless circumstances force them to modify their roadmap.