Just as Odysseus was once threatened simultaneously by the two monsters Scylla and Charybdis, Wieland sees the most important central bankers currently challenged to escape inflation without triggering a banking crisis. The frantic emergency merger of Credit Suisse with its Swiss rival UBS showed how fragile the situation in the banking sector currently is, Wieland said. The rapid rise in interest rates since last summer has been hard on the banks.
However, this was foreseeable, Wieland warns: "Unfortunately, the central banks did not follow the recommendations of many experts to raise key interest rates rather early, but slowly." Instead, he says, financial and monetary policy has relied on the network of new institutions and stricter regulations created after the global financial crisis in 2007. Whether this will be enough, he said, remains to be seen. "What is clear is that stressed banks are restricting their lending."
If a full-blown banking crisis does occur, the central banks will not continue to raise interest rates, or will partially roll back the increases.Going forward, Wieland recommends the following. "Capital and liquidity requirements for banks still need to be raised significantly if government intervention at the expense of taxpayers is to be avoided and central banks are to be given sufficient leeway to fight inflation. And next time, monetary policy must acclimate the financial system to higher interest rates sooner but more slowly."
Handelsblatt: "Weltwirtschaft zwischen Skylla und Charybdis"