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The ‘crisis of confidence’ in the global banking system weighs on the markets

Investors are bracing for more stock market turbulence this week as global regulators scramble to address a crisis of confidence in banking markets amid news of Credit Suisse’s emergency acquisition.

Following weekend talks to calm market nerves, Swiss banking giant UBS agreed overnight to buy Credit Suisse in a landmark $2 billion ($3 billion) deal brokered by the government aimed at containing a crisis of confidence that threatened to spill over into world financial markets. It will be the first merger of two global systemically important banks since the global financial crisis of 2008.

UBS has agreed to acquire Credit Suisse.Credit:Bloomberg

The last month has also seen the failure o rescue of three midsize US banks, leaving investors concerned about which institutions might be next. US banks last week borrowed a total of $164 billion from two Federal Reserve support facilities, a sign of financial stress, raising fears about how widespread and serious liquidity problems are in the US. your banking system.

“On the one hand, the authorities have established a backup in the US, which should prevent the worst case scenario. Similarly, investors are still nervous that other banks could run into trouble,” AMP chief economist Shane Oliver said over the weekend as the Credit Suisse deal was being negotiated.

In Australia, regulators have acted reinforce confidence in the nation’s banks by emphasizing the high liquidity and sound capital of local lenders.


Still, the effect on the Australian market of the turmoil in the banking sector could be higher wholesale funding costs for the country’s biggest banks and a squeeze on lending, which would be negative for economic growth, said AMP’s Oliver. .

This has led some traders to cut your bets of new increases in interest rates by the Reserve Bank.

Australian stocks are set to open weaker with the overnight futures market pointing to a 1.4 percent drop in the benchmark S&P/ASX200 index.

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