# Central banks keep hiking rates amid banking turmoil
Author:  Pal Sinha, Barnali 
Author URL: https://financedigest.com/author/pal-sinha-barnali
Published: 2023-03-23
Category: FINANCE
Category URL: https://financedigest.com/category/finance
Meta Title: Bank of England Follows Fed, Swiss National Bank in Hikes
Meta Description: The Bank of England has continued interest rate hikes to combat inflation, reassuring the stability of the UK banking system amidst global financial turmoil.
URL: https://financedigest.com/central-banks-keep-hiking-rates-amid-banking-turmoilhtml

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By David Milliken, John Revill and Aniruddha Ghosh

(Reuters) – The Bank of England on Thursday followed the Federal Reserve and the Swiss National Bank in ploughing on with interest rates hikes, saying the UK banking sector was strong enough to withstand the instability that rippled through markets this month.

Relentless rate hikes to rein in inflation are among factors blamed for the worst banking sector stress since the 2008 financial crisis and investors had questioned whether the central banks could press on with tightening policy.

The collapse of two U.S. lenders earlier this month triggered turmoil in banks around the globe, ensnaring one of Europe’s biggest [banking names in 167-year-old Credit](https://www.financedigest.com/explainer-what-are-credit-default-swaps-and-why-are-they-causing-trouble-for-europes-banks.html "Explainer-What are credit default swaps and why are they causing trouble for Europe’s banks?") Suisse AG.

After its eleventh straight hike, the BoE said it had noted the “large and volatile moves” in financial markets, but that [Britain’s banking](https://www.financedigest.com/britain-seeks-to-boost-banking-services-from-fintechs.html "Britain seeks to boost banking services from fintechs") system remained resilient.

We’ve had events in the last two weeks particularly which have signalled problems that have had to be dealt with in the [global banking](https://www.financedigest.com/credit-suisse-54-billion-lifeline-offers-limited-respite-to-global-banks.html "Credit Suisse  billion lifeline offers limited respite to global banks") system. And there has been very prompt action,” BoE governor Andrew Bailey told broadcasters.

“We have learnt a lot of lessons from the financial crisis. Of course we keep [learning lessons](https://www.financedigest.com/learning-the-lessons-of-the-bangladesh-bank-heist.html "LEARNING THE LESSONS OF THE BANGLADESH BANK HEIST"), but I’m confident that the banks in (Britain) are in a much stronger position,” he said.

While [recent market](https://www.financedigest.com/spains-santander-reaffirms-targets-in-face-of-recent-market-turmoil.html "Spain’s Santander reaffirms targets in face of recent market turmoil") jitters have eased, they have prompted investors to adjust to more challenging economic and lending conditions ahead.

The index of top [European banks](https://www.financedigest.com/dollar-outshines-euro-sterling-amid-european-bank-jitters.html "Dollar outshines euro, sterling amid European bank jitters") was down 1.7%, with German banking giants Deutsche Bank and Commerzbank falling 2.1% and 3.2%, respectively. London-headquartered HSBC dropped 2.5%.

U.S. banking shares fared better, with some traders [citing Fed’s hints that it was on the verge of pausing](https://www.financedigest.com/elon-musk-and-others-urge-ai-pause-citing-risks-to-society.html "Elon Musk and others urge AI pause, citing ‘risks to society’") further increases in borrowing costs as a source of some relief.

Troubled U.S. regional lender First Republic Bank, which is among [banks speaking to peers and investment firms about potential deals](https://www.financedigest.com/seven-out-of-ten-uk-adults-aged-25-44-never-seek-advice-on-dealing-with-debts-despite-depending-on-the-bank-of-mum-and-dad.html "Seven out of ten UK adults aged 25-44 never seek advice on dealing with debts despite depending on the bank of mum and dad"), rose 5% on Thursday.

Other U.S. [banks under the microscope in the wake](https://www.financedigest.com/analysis-powerful-swiss-central-bank-faces-reform-calls-in-wake-of-credit-suisse-rescue.html "Analysis-Powerful Swiss central bank faces reform calls in wake of Credit Suisse rescue") of U.S. [regulators’ taking over Silicon Valley Bank](https://www.financedigest.com/exclusive-u-s-regulator-seeks-sale-of-silicon-valley-bank-signature-bank-portfolios-sources.html "Exclusive-U.S. regulator seeks sale of Silicon Valley Bank, Signature Bank portfolios-sources") (SVB) and Signature Bank also gained. Western Alliance Bancorp jumped 5% and PacWest Bancorp and Truist Financial Corp gained between 1% and 4%.

[BANK BOND PRESSURE](https://www.financedigest.com/factbox-global-banks-take-axe-to-jobs-as-cost-pressures-mount.html "Factbox-Global banks take axe to jobs as cost pressures mount")

Earlier on Thursday, the Swiss National Bank raised its benchmark interest rate by 50 basis [points and said Credit Suisse’s](https://www.financedigest.com/explainer-credit-suisse-how-did-it-get-to-crisis-point.html "Explainer-Credit Suisse: How did it get to crisis point?") takeover by its Swiss rival UBS had averted a financial disaster.

Swiss authorities had urged the [banks to come together and offered financial](https://www.financedigest.com/financial-crime-is-the-chink-in-the-banks-armour.html "Financial crime is the chink in the banks’ armour") guarantees worth up to 260 billion Swiss francs ($280 billion) to get the deal done.

At this moment the focus has to be that we can maintain [financial stability and that the closing](https://www.financedigest.com/fast-track-financial-close.html "FAST-TRACK FINANCIAL CLOSE") of the deal is smooth and fast,” SNB Chairman Thomas Jordan told a news conference.

Citigroup downgraded Europe’s banking sector, warning the rapid pace of interest [rate hikes](https://www.financedigest.com/wall-street-slips-dollar-gains-as-fed-seen-hiking-rates-in-may.html "Wall Street slips, dollar gains as Fed seen hiking rates in May") will further weigh on economic activity and lenders’ profits.

The European [banking sector’s](https://www.financedigest.com/big-ecb-hike-adds-fuel-to-the-banking-sector-fire.html "Big ECB hike adds fuel to the banking sector fire") fundamentals look healthy. But the ongoing confidence [crisis could limit banks’](https://www.financedigest.com/how-the-2023-banking-crisis-unfolded.html "How the 2023 banking crisis unfolded") risk appetite and reduce the flow of credit,” Citigroup equity strategists said.

![](https://www.globalbankingandfinance.com/wp-content/uploads/2023/03/graphic-431x500.jpg)

(Graphic: Over $95 [billion in market](https://www.financedigest.com/b2b-telecommunication-market-to-more-than-us-27-billion.html "B2B Telecommunication Market to more than US$ 27 billion") value wiped out in 2 weeks – https://www.reuters.com/graphics/GLOBAL-BANKS/USA/myvmobkeovr/graphic.jpg)

The rescue of [Credit Suisse ignited broader concerns about investors’ exposure to a fragile banking](https://www.financedigest.com/credit-agricole-launches-china-ma-and-investment-banking-business.html "Credit Agricole launches China M&A and investment banking business") sector.

Switzerland’s financial market regulator FINMA on Thursday defended its decision to impose steep losses on some of [Credit Suisse bondholders as part of its rescue](https://www.financedigest.com/bank-shares-rise-after-credit-suisse-rescue-eases-crisis.html "Bank shares rise after Credit Suisse rescue eases crisis"), saying the move was legally watertight.

The decision to prioritise shareholders over Additional Tier 1 (AT1) bondholders rattled the $275 billion AT1 [bond market and some Credit Suisse](https://www.financedigest.com/mitsubishi-ufj-to-postpone-at1-bond-issuance-in-credit-suisse-fallout.html "Mitsubishi UFJ to postpone AT1 bond issuance in Credit Suisse fallout") AT1 bondholders were seeking legal advice.

The convertible bonds were designed to be invoked during rescues to prevent the [costs of bailouts falling onto taxpayers as it happened during the global financial](https://www.financedigest.com/how-much-does-cloud-based-financial-software-cost.html "How Much Does Cloud-based Financial Software Cost?") crisis in 2008.

[Asian policymakers are also seeking to calm](https://www.financedigest.com/asian-stocks-rally-as-bank-jitters-calm-alibaba-lifts-mood.html "Asian stocks rally as bank jitters calm, Alibaba lifts mood") investor nerves about AT1 bonds but the ongoing turbulence is likely to keep a lid on fresh debt sales.

Hong Kong and Singapore [central banks](https://www.financedigest.com/inflation-trumps-financial-risks-as-central-bank-tightening-set-to-continue.html "Inflation trumps financial risks as central bank tightening set to continue") said they would stick to the traditional hierarchy of creditor claims if a bank was to collapse in their respective jurisdictions.

However, the volatility may prompt at least two Japanese banks, Mitsubishi UFJ Financial [Group](https://www.financedigest.com/mazars-to-acquire-financial-modelling-consultancy-and-training-provider-corality-financial-group.html "Mazars to acquire financial modelling consultancy and training provider, Corality Financial Group") and Sumitomo Mitsui Financial Group, to put AT1 issuance on hold, two sources told Reuters.

Policymakers from Washington to Tokyo have stressed the turmoil is different from the crisis 15 years ago, [saying banks](https://www.financedigest.com/boes-bailey-says-bank-reforms-worked-but-questions-about-liquidity-buffers.html "BoE’s Bailey says bank reforms worked but questions about liquidity buffers") are better capitalised and funds more easily available.

[Yet politicians are also wary of public perceptions that banks](https://www.financedigest.com/swiss-national-bank-says-inflation-battle-not-yet-won.html "Swiss National Bank says inflation battle not yet won") are being bailed out again, after anger over the sector’s costly rescue in 2008. U.S. authorities [say the recent support for SVB](https://www.financedigest.com/over-a-dozen-chinese-based-firms-say-they-have-minimal-exposure-to-svb.html "Over a dozen Chinese-based firms say they have minimal exposure to SVB"), in which all the bank’s deposits were protected, did not amount to a taxpayer-funded bailout.

The U.S. Senate Banking Committee on Thursday called on the [former chief executives](https://www.financedigest.com/bank-of-england-fines-former-tsb-executive-over-2018-it-failure.html "Bank of England fines former TSB executive over 2018 IT failure") of SVB and Signature Bank to testify as lawmakers weigh possible action.

You must answer for the bank’s downfall,” the panel’s Democratic chairman and ranking Republican wrote in separate letters to [former SVB Chief Executive Gregory Becker and former Signature Bank CEO](https://www.financedigest.com/shareholder-group-iss-backs-barclays-board-over-former-ceo-staley.html "Shareholder group ISS backs Barclays board over former CEO Staley") Joseph DePaolo.

($1 = 0.9280 Swiss franc)

(Reporting by Reuters bureaus; Writing by Toby Chopra; Editing by Tomasz Janowski)


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