Risk spillover of U.S. financial system results in European banking turmoil, says expert

Singapore, 10 April (2023) -  A lack of independent financial policies and oversight has put the European banking industry in turmoil due to spillover risks from the U.S. financial system, a Singaporean economist told Xinhua in a recent interview.

The crisis that happened to Credit Suisse and Deutsche Bank reflected how fragile some European banks were when depending excessively on an international financial system dominated by U.S. dollars, said Yan Li, a senior lecturer at Nanyang Business School of Singapore's Nanyang Technological University.

"The overlapped systemic financial risk and lack of trust jointly fueled the banking crisis in Europe," Yan noted, adding that such a situation may see the European banking industry and economy face hard times in the future.

"The United States may slow down interest rate hikes, but will not cease. Therefore, the European banking industry will face growing systemic risks," said the economist.

However, Yan said that the current banking crisis in some European countries and the United States is unlikely to deteriorate into another global financial crisis similar to what happened in 2008.

"The collapse of the banking industry and even the financial system in Europe and the United States is unbearable, so relevant governments will do their best to stop the crisis from spreading," he said.

In Europe, Credit Suisse, the second largest bank in Switzerland, was taken over by Swiss banking giant UBS due to a liquidity crisis and market volatility. Also in March, the share prices of Germany's biggest lender Deutsche Bank plunged amid growing concern about the health of European banks.