A group of treasury managers have warned that the “banking crisis” is not over, but suggested that it would be “over panicking” if local authorities were to withdraw their funds from the financial institutions.
Speaking at Room151’s Local Authority Treasurers’ Investment Forum North, Innes Edwards, Edinburgh City Council’s principal treasury and banking manager, commented on the Swiss central bank UBS’s takeover of Credit Suisse following the fall of the bank’s shares and bonds.
This comes as two US banks, Silicon Valley Bank and Signature Bank, also collapsed this month. All three instances together causing fears to intensify about a global banking crisis similar to the financial crash of 2008.
He told delegates: “I think we’re in very interesting times, and I don’t think we’ve necessarily seen the end of the banking crisis.”
However, responding to a question on whether he had changed his view on bank risk in light of the current Credit Suisse crisis, Edwards stated that Edinburgh City Council has not withdrawn any money from banks.
“We haven’t made any changes, although we’re already keeping funds very liquid, certainly with the banks,” he added.
But, there is no doubt that this doesn’t feel like 2008 and the UK banks are better capitalised and in a much better position to wave off any systemic risk.
Withdrawing money is ‘over panicking’
Edwards’ sentiment was echoed by Danny Mather, Warrington Borough Council’s head of corporate finance, who said: “We’ve not withdrawn money from the banks and I don’t think we will.
“We also own a 33% share in a bank. So, this is obviously very, very relevant to us. I think it will be over panicking to withdraw money because if you look at the regulation in the UK banking sector it is very, very strong.”
He stated that the collapse of the Silicon Valley Bank and Signature Bank is due to regional banks in America not being well regulated.
Mather said: “But I do think, with all the capital adequacy ratios, the UK banking sector and the European banking sector is relatively stable. At the moment, we don’t see there’s much risk”.
Edwards echoed Mather’s point, that due to banking regulation in the UK, there is less risk associated with investments in banks, unlike America.
He said: “I think if you look at the amount of emergency borrowing drawn down from the [US] Federal Reserve System discount window in the last week, it’s actually more than the 2008 crisis. So, clearly in America, there are significant issues.
“But, there is no doubt that this doesn’t feel like 2008 and the UK banks are better capitalised and in a much better position to wave off any systemic risk.”
I think we’re in very interesting times, and I don’t think we’ve necessarily seen the end of the banking crisis.
No ‘froth and nonsense’ of 2008
In a separate session, Charlotte Ryland, co-head investments at CCLA, suggested that the “banking crisis” over the last two weeks is very different to the financial crisis in 2008.
She told delegates that “none of the froth and nonsense that we saw back then is what we can see today” due to increased banking regulation and “sensible levels of capital on the balance sheet” of banks.
Ryland said: “The other thing is that they (governments) are completely paranoid about problems in the financial sector. That is why you have seen the US come in so dramatically when we had problems with Silicon Valley Bank.”
She also highlighted that all three banks which have collapsed over the past month already had problems or issues. For instance, Silicon Valley Bank catered largely for the tech sector, which subsequently led to its downfall.
“The other one is Credit Suisse, Credit Suisse has been a problem for absolutely ages. Crisis and scandal after scandal.
“So yes, they’ve had issues now with their biggest backers not being willing to put more money in place. But does that say all investment banks are bad or does it just say Credit Suisse is bad.
“So, we ought to not be too blasé and say it doesn’t matter, but, do I think it is a global financial crisis? I am not sure if it is,” Ryland added.
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