This is not a crisis yet, but only its rehearsal

The failure of several major US and European banks will not lead to a global financial crisis, at least not yet.

This opinion was expressed by the Honored Economist of the Russian Federation, Head of the Department of Labor and Social Policy of the RANEPA Sergey Kalashnikov during a press conference in the NSN, dedicated to discussing the crisis in the financial market. Let me remind you: during the whole last week, the prices for shares of American and European banks were in a fever. It all started with the announcement of the bankruptcy of Silicon Valley Bank, which ranked 16th in the United States in terms of assets, estimated at $211 billion. The American banking crisis echoed in Europe, as a result of which the oldest Swiss bank, Credit Suisse, could not cope with payments to depositors and was on the verge of bankruptcy.

As Sergei Kalashnikov emphasized at the very beginning of his speech, what is happening now with banks in the West will in no way affect the banking system of the Russian Federation:

“This will not happen for a number of reasons, the main of which are two: firstly, this will not happen because the Russian banking system is cut off from the Western banking system; secondly, the source of the crisis, which led to the collapse of some Western banks, is simply absent in Russia. This reason is called “financing of venture projects” (venture projects (from the English venture – risky) are business projects that are aimed at the development and implementation of a new high-tech product. They are distinguished by both a high degree of risk and large expected income – C. AND.). In my opinion, the current situation will not lead to a global crisis. In my opinion, this is just a rehearsal, but later (since the reasons are irremovable) it may cause a colossal revision of the entire financial system of the West. Well, including, therefore, the Russian Federation.”

According to Sergey Kalashnikov, the “trigger” of the crisis was the increase in the rate of the US Federal Reserve System (FRS), for which the venture bank Silicon Valley Bank (“Bank of Silicon Valley”) was not ready:

“After all, the source of any crisis is panic (panic in relation to banks, panic in relation to the stock exchange), i.e. people came to collect money, but the bank did not have them, and the bank turned out to be bankrupt. Why did people come to collect money? Yes, because after a long enough period when this bank paid interest at a low Fed rate, after its increase it turned out to be completely inefficient. Naturally, people decided to take money from there and shift it to where it is more profitable. As a result, an outflow of money began, and the bank burst. The same thing happened to other banks in America. But most importantly, these are the problems associated with the Swiss bank Credit Suisse: Credit Suisse is a classic old huge world bank. Why did he burst? It burst for one simple reason: due to its heaviness, due to its solidity and its wealth, a huge number of world banks and not only banks were on-lending to Credit Suisse and directed this money to highly profitable operations related to IT technologies, innovative technologies, etc. ., and therefore, when the crisis chain reached other banks, Credit Suisse was also unable to provide them.”

But the global causes of the banking crisis, as Sergey Kalashnikov explained, is that the profitability in modern high-tech industries is about 60-70%, and in the basic industries the profitability reaches 10% at best. Naturally, the money goes where the yield is higher:

“But the problem is that the volume of high-tech industries is not enough for that huge “overhang” of money that exists in the world, and therefore there are high risks, because in order to penetrate there, people go to various venture investments, which are very doubtful. And on the other hand, they clog this “neck”. This implies the conclusion that now this banking crisis will not entail any serious consequences, but in the future (since the global causes have not been eliminated) it will be a big problem. The next crisis will go over the ruins of the existing financial system.”

Despite the fact that the current Western banking crisis, as Sergei Kalashnikov said earlier, will not affect the banking system of the Russian Federation, the crisis in the West will certainly have a negative impact on Russian exports: prices for oil and other exported raw materials are likely to fall, and “diameter and depth of the hole” in our budget, respectively, to grow.

Sergei Ishkov.

Freepik photo