It would be a mistake to stop fighting inflation to preserve banks. But inflation also needs to be brought down in a controlled manner
central bankers is to keep banks stable and inflation low. Today they face an enormous battle on both fronts. TheStubbornly high inflation led the Federal Reserve to increase interest rates by a quarter of a percentage point on March 22nd, less than a week after the European Central Bank raised rates, too. The Fed acted days after three mid-sized American banks had collapsed and Credit Suisse, a grand old Swiss bank with more than SFr500bn in assets, suffered a wounding run that ended in a.
Consider the humbling of Credit Suisse. Regulators are supposed to be able to “resolve” a failing bank in an orderly fashion over a weekend by following a plan to wipe out shareholders and write down convertible bonds . But Credit Suisse’s demise has sowed uncertainty and confusion. Instead of winding down the bank, Swiss officials pressedto buy it, providing generous taxpayer-backed loans and guarantees to make the deal work and even passing a law to make the terms watertight.
As we were about to publish this, it looked as if First Republic would survive without more state intervention. Nonetheless, the combination of banks’ travails and regulatory uncertainty could yet harm the economy.
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