Banks will suffer 2008-style losses if inflation isn't controlled, top banking expert says
in early March. SVB's implosion, sparked by losses on its bond holdings as interest rates rose and the value of its fixed income securities plummeted, snowballed into a wider regional bank crisis that resulted in the fall of Signature Bank and First Republic Bank. and the risk that more lenders are teetering on the brink. BIS general manager Agustín Carstens warned of bank losses of"a similar order of magnitude" as the 2008 financial crisis.
"The global economy is at a critical juncture," Carstens said at a press event on Sunday during a presentation of the report, emphasizing the need to lower inflation to avoid stressing the financial system."The key challenge is fully taming inflation, and the last mile is typically the hardest," he added.
The Fed has been scrambling to get a handle on high prices for the past year, having raised interest rates aggressively to bring inflation down. Prices cooled to 4% in the May Consumer Price Index report, below the 41-year record notched last summer, but still above the Fed's long-run 2% target. Central bankers are unlikely to get inflation back to 2% without triggering a recession, commentators have warned, pointing to recession signals flashing in various corners of the economy. Mainstream indicators like the inverted yield curve have been blaring warnings for much of the past year, while less traditional signals like
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