It is undeniable that global markets are intertwined, and this is no more apparent than in the interbank funding market. Recent research shows that the default risks of US banks are imported through wholesale funding by global systemically important banks of many other countries, affecting their funding costs and blunting monetary policy.
Bank for International Settlements (BIS)
One pleasant surprise of the pandemic has been the shortage of business bankruptcies, despite recurrent lockdowns that have drained their incomes. But is this rosy picture a cruel illusion to be removed as governments stop propping up small companies? Banks will soon find out if government life support has simply delayed the inevitable.
The introduction of a Central Bank Digital Currency (CBDC) is taking concrete shape in more and more countries economic and currency areas. The European Central Bank (ECB) is currently evaluating the specifications of a digital Euro, Sweden recently extended the test phase for its own CBDC and in China,
Relationship lending involves regular contacts between a bank and a customer over time, so the lender can understand the customer well enough to provide a tailored credit solution with little risk. During times of crisis, relationship lending is mutually beneficial and may be increasingly employed as the pandemic’s full impact transpires.
Digitisation has strengthened the trend toward a cashless system, with central banks exploring the feasibility of central bank digital currencies. Spearheaded by The Bahamas with its release of the sand dollar, many central banks are in various stages of releasing their own cryptocurrencies. Although China is the dominant leader in CBDC development, other central banks are catching up. CBDCs share some of the attributes of popular cryptocurrencies but not all.
Derivatives carry the potential to drastically increase or drastically decrease initial investments, depending on the underlying assets’ price movements. Derivatives investing is for the experienced investor or the less experienced investor willing to do some research. One advantage is that an investor can get into the action with little expenditure of money but should be prepared to lose some, if not all, of it, should prices swing the wrong way.