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ALEX BRUMMER: UK lenders are tied to a volatile banking universe

Warning signs: Hedge funds and traders are often one step ahead of authorities in spotting weak links in the financial chain

Fortunately, the Chancellor was temporarily insulated from the volatile world of the markets when he presented his budget.

Having regained Britain’s reputation for fiscal competence, following the failure of the Truss-Kwarteng experiment last year, Jeremy Hunt was able to make progress on his main goals of getting inactive citizens back to work.

If the American financial channel CNBC had been in withdrawal, it might not have been so quick to return two-thirds of the tax gains accumulated since November 2022.

Warning signs: Hedge funds and traders are often one step ahead of authorities in spotting weak links in the financial chain

Warning signs: Hedge funds and traders are often one step ahead of authorities in spotting weak links in the financial chain

Hunt, along with colleagues at the Bank of England, encouraged HSBC to save the UK arm of Silicon Valley Bank for the tech industry.

But the UK, as a major financial centre, will struggle to escape blowouts in the rest of the banking universe.

Hedge funds and traders are often one step ahead of the authorities when it comes to spotting weak links in the financial chain.

The alarming 20% ​​drop in Credit Suisse’s share price shows how quickly contagion can pass from second-line institutions, such as SVB, to the general public.

In the last quarter of last year, depositors withdrew £120 billion from Credit Suisse. There has been little since then to encourage funds to return.

The bank’s largest investor, Harris Associates, sold its stake. The publication of the bank’s accounts has been delayed by the American authorities.

And a Saudi investor shows little interest in being a lender of last resort.

In the final days of Fred Goodwin’s Royal Bank of Scotland in 2008, the disgraced chief executive toured town to persuade investors to back a £20billion rights issue.

Equity was coming, but that didn’t stop the NatWest owner from having to go to the government for a bailout after Lehman.

Amid much controversy, the US Treasury and Federal Reserve were quick to erect a safety net under the US banking system last weekend in a bid to quell the panic.

This, despite promises made after the Great Financial Crisis that no bank was too big to fail.

The Swiss National Bank must now intervene. It will either offer a cash offer or could even encourage a merger with UBS.

The inaction hurt other European banks. BNP and other continental lenders are becoming cautious about dealings with Credit Suisse in early signs of a credit crunch.

Uncertainty triggered uncomfortable declines in European stock markets, with the bank-heavy FTSE 100 down 3.8%.

Shares of regional banks stumble in the US and major US stock indices are down sharply.

If there is a silver lining, it is that market appetite for further interest rate hikes, on both sides of the Atlantic, is waning. No need to agonize over the agony when lenders pull out of technology and home lending for fear of increased defaults.

Doom loop

The big surprise in the budget is how quickly the economic forecast has changed.

This, combined with the freezing of personal tax thresholds, has given the Chancellor some budgetary leeway to try something different.

If there is a lesson to be learned, it is that we rely far too much on official forecasts.

After negative growth projections from the Bank of England and the Office for Budget Responsibility last year and the IMF this year, opposition politicians were eager to mock the country.

They contributed to a catastrophic loop. Yet there is observable evidence – crowded airports, restaurant lines, overflowing shopping bags and store openings – to suggest something different.

It takes a lot to derail Britain’s resilient consumers and businesses.

The latest YouGov/Cebr survey of consumer and business confidence shows growing optimism in nearly every category, including house prices and job insecurity.

All of this could go up in smoke if banks refuse to lend to each other or, worse, to customers.

Luckily, for now, the doomsters are losing.

nuclear spring

Britain has a bad habit of allowing others to exploit our winning technologies.

The Chancellor deserves praise for recognizing the promise of Rolls-Royce small modular reactors after nearly a decade of skepticism and delays.

Under Great British Nuclear, the government is committing to funding exciting new technology. About time!

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