Anthony Rowley

The View | Deposit flight shows damage from the latest banking crisis is far from done

The effects of a long period of low interest rates being followed by sharp rate increases are likely to be long-lasting and produce more than a mild recession

Rather than repeatedly tightening regulations after a crisis, policymakers should focus on ending quick fixes such as monetary or fiscal easing

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Protestors hold a boat reading ‘Crisis Suisse’ during a demonstration outside the Credit Suisse Group annual general meeting of shareholders in Zurich on April 4. Credit Suisse faced imminent failure if it was not sold to UBS Group in an emergency rescue last month, according to the Swiss central bank. Photo: Bloomberg

Anthony Rowley

Published: 1:00am, 23 Apr 2023

For those people who are naive or foolish enough to believe the latest banking crisis is over – and there appear to be many of them still, including commentators who should know better – the continuing flight of bank deposits must have come as a shock, although it should not have.

Even a cursory analysis would suggest that, after a long period of record low interest rates during which borrowing at household, corporate and government levels reached new heights, successive and sharp rate increases are likely to have a deep-seated and long-lasting impact.

The reality is that even if the biggest banks are well capitalised and regulated enough to avoid collapse, many smaller banks are suffering from large outflows of deposits. The widespread credit tightening this is provoking is likely to trigger more than a mild economic recession.

Asia is not immune to this coming crisis. Even if the shockwaves emanating from the likes of Silicon Valley Bank in the United States or Credit Suisse in Switzerland are weakening, the fact that Asian economies are more bank-dependent and less capital market-reliant than those elsewhere will tell.

Asia’s corporate sector, and especially that of “emerging” Asia, is highly exposed in terms of borrowing relative to gross domestic product size, according to the Institute of International Finance data at the end of 2022. The ratio for corporate Asia was 130 per cent, well above the 97 per cent figure in mature economies.

Even if many financial analysts and investors have somehow managed to miss the significance of what this combination of high indebtedness with rising interest rates implies for a highly stressed banking sector, depositors have not.