Banking isn't in a crisis - and the sector's challenges will help the Fed to fight inflation, IMF chief says
after it sold long-dated bonds at a loss and moved to raise fresh capital. The scramble for cash spooked its customers, resulting in a tidal wave of withdrawals that overwhelmed the bank and spurred the Federal Deposit Insurance Corporation to seize control and guarantee all of its deposits.
But Georgieva said she didn't view last month's fiasco as a crisis. Some turmoil was to be expected after the Fed hiked borrowing costs from near-zero to around 5% in the space of a year in a bid to tame soaring inflation, she said. "I don't think there is a banking crisis, there are vulnerabilities that we should have expected," she told CNBC.
"Let me say that we have lived through a long period of very low interest rates and ample liquidity and very quickly we moved into high interest rates and restrictive liquidity," Georgieva added."Of course there would be vulnerabilities to be exposed." The IMF isn't the first high-profile institution to predict the banking turmoil will lead to lenders pulling back on financing. However, other market forecasters have underscored the impact a credit crunch would have on economic growth, rather than inflation.," with SVB's collapse heralding a credit crunch that could plunge the economy into a severe recession.
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