When the US and UK governments said more about how safe banks are, stock markets around the world went up again.
In the past few months, a number of bank failures have scared away investors.
But the stock markets in the US went up after Treasury Secretary Janet Yellen said that if another bank failed, the US government would protect people’s deposits.
At the end of the day in the UK, the FTSE was up 1.79 percent because shares of the top banks went up.
NatWest, Prudential, and Barclays all saw their stock prices go up by about 5%. Standard Chartered and Lloyds also saw their stock prices go up by about 5%.
In a speech on Tuesday, Ms. Yellen said, “The situation is getting better, and the US banking system is still strong.”
This comes after Silicon Valley Bank, and Signature Bank went out of business earlier this month.
People rushed to get their money out of the bank because they were worried about its health.
And last week, a group of the biggest US banks raised $30 billion (£24.5 billion) for a regional bank called First Republic Bank. However, its share price fell by more than 45% on Monday.
Ms. Yellen said the US had to step in when the two banks failed to “protect the broader banking system.” She said this after promising everyone who had money in both banks would be safe.
She also said the same steps could be taken if the same happened to other smaller banks. This meant that savers’ money would be recovered if another bank failed.
UK reassures stock markets traders
In the UK, Jeremy Hunt, the Chancellor, told MPs that the UK’s financial system is “fundamentally strong” after Rachel Reeves, the shadow chancellor for Labour, asked him some questions.
Ms. Reeves asked if the system is “enough to protect taxpayers and depositors” and if the government is sure that no other UK banks are at risk of failing after the failure of Silicon Valley Bank UK.
There has also been more instability. For example, rival Swiss bank UBS had to save Credit Suisse.
Mr. Hunt said that the stock markets are uncertain but that the UK financial system is “fundamentally strong” and that UK banks have enough money—much more than before the 2008 financial crisis.
On Monday, the US Federal Reserve, the Bank of England, and six other central banks worldwide joined forces to help stop the crisis from worsening by putting more dollars into the financial system.
Through the seven-day-a-week facility, banks can borrow money from the central bank.
But so far, no banks have used the so-called swap line. This suggests that the UK banking system is manageable right now.
All eyes on the US interest rates
The world economy has a lot of problems, and all eyes are on one place: the United States.
Two failed banks in the US this month have made people worry about the stock markets and the financial system’s health.
The collapses happened after borrowing costs worldwide went up quickly, led by the US. This shocked the world economy and made people worry about a painful downturn called a recession.
The US central bank is central to the crisis
Since 2022, the Federal Reserve has been in the lead regarding raising interest rates. This is because they are trying to stop price increases that are increasing the cost of living.
Can that campaign go on when risks to the economy are getting worse?
Just two weeks ago, Chairman Jerome Powell said that the bank might have to raise interest rates more quickly and by more than expected. He said this was because he was worried that progress on stabilizing prices was slowing down.
In the year leading up to February, prices went up at a rate of 6%, which is much higher than the healthy rate of 2%.
But because of the recent trouble in the banking system, many investors think the Fed will be especially careful not to make a big move that would shock the stock markets.
Many experts think that the government will raise rates by 0.25 percentage points or not raise them at all.
No matter what happens, Mr. Powell is in the hot seat and has little chance of making his many critics happy.
He says that Mr. Powell will “have to play the two-handed economist perfectly,” convincing investors that the central bank can still raise rates to fight inflation on the one hand while using other tools to fight stress in the financial system.
Mr. Powell, a lawyer put in charge of the Fed by former President Donald Trump, had to regain trust after he famously called the price increases that started happening in the United States in 2021 “temporary.”
The bank collapse have added to the scrutiny, putting the costs of the rapid rate-hiking campaign in the spotlight and making people wonder if the Federal Reserve was too lax in its oversight.
In the past year, the Fed has raised its key rate, which it charges banks to borrow, from near zero to over 4.5%, the highest level since 2007.
But strong hiring has helped the economy hold up better than many people thought it would, despite a sharp slowdown in the housing market and problems in the tech sector, where low borrowing costs had helped growth.
Still, the recent panic in the banking system and by extension the stock markets is likely to send the US economy into a recession sooner than expected, and Mr. Sweet said there is no doubt that pressure on Mr. Powell has grown.
Opinions expressed by Texas Today contributors are their own.
