Banking quake and economic crisis

Banking quake and economic crisis

What dangers does the Berlin economy face?

First the bankruptcy of Silicon Valley Bank in the USA, the end of Credit Suisse and then high interest rates in response to high inflation: some people are wondering whether the world is facing a new banking earthquake.

At a joint meeting of the VBKI's Economic Policy and Finance/Sustainability committees, Olaf Schulz, Chief Representative of Berliner Sparkasse (BSK), explained why a banking earthquake in Germany is unlikely and what trends BSK is observing. 

What do Silicon Valley Bank and BSK have in common? Both are considered regional banks by the financial regulator - even though Silicon Valley Bank had total assets of 200 billion euros and BSK "only" 50 billion euros. BSK must therefore follow the same rules, for example with regard to deposit protection, as much larger competitors that are not limited to one city. However, while the US banking regulator deregulated the banking sector during the Trump years in order to stimulate the economy, the European Central Bank has maintained its strict rules: "I therefore see no systemic risk or danger of a European banking quake," says Schulz. In his view, the main problem is the US shadow banks - financial institutions such as hedge funds or pension funds that act like banks but are not monitored as such. If these shadow banks were to get into financial difficulties, they would not be entitled to emergency financial aid from the Fed, and investors' money is generally not covered by insurance. 

Olaf Schulz believes that Berlin's economy is developing more robustly than other regions in Germany. It is expected to grow by 2 percent this year compared to the forecast for Germany as a whole of 0.4 percent. The current population growth in Berlin is playing a positive role in this. Another interesting aspect mentioned by Mr. Schulz is the fact that Berlin's economy is less energy-intensive than others. 

Olaf Schulz believes that Berlin is well prepared for the current digitalization megatrend: One in five new jobs in Berlin is now created in the field of digitalization, a new digital startup is founded every 12 hours and even DAX companies are relocating their digital hubs to Berlin: "Berlin now has the largest IT job market in Germany. Thanks to the fintech sector, Berlin has also become the second most important banking location in Germany, and we are even the European leader in the blockchain sector," says Schulz. He is only concerned about the housing market. The housing shortage is a threat to economic growth. It prevents people from moving in, and this is primarily responsible for Berlin's above-average growth rates. 

When it comes to the second megatrend, sustainability, the Chief Representative still sees a few question marks. In principle, it is a good idea for the EU to promote the green transformation of the economy through the banks. In future, banks will have to ask questions about the sustainability of the project when providing financing. Depending on the sustainability score, the financing will be cheaper, more expensive or not financed at all. However, the "S" in ESG, Social, should not be forgotten, says Schulz and asks rhetorically "How high interest rates can the tenants of an unrenovated old building tolerate?" For SMEs, too, sustainability has often been a cost factor, and green innovations have often been too expensive to prevail over existing products.   

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