2023 Mid-Year Themes

Editor’s Note: We take this opportunity to reflect on six themes that have defined an eventful first half of the year.

Stress Test

Monetary policy across developed countries has been tightening for more than a year. Careful foreshadowing by central banks has been designed to limit any dislocation. For a long time, the regime change for interest rates seemed to be well managed.

And then came the Ides of March. Silicon Valley Bank (SVB) failed suddenly and dramatically, precipitating a period of high anxiety that blanketed the global financial system. The headlines have calmed, but concerns about latent vulnerabilities remain.

Lessons have been learned. Institutions should have been better prepared for rising interest rates, hedging their risks and ensuring appropriate liquidity. Financial supervisors should have been more proactive and forceful. Management teams, their boards of directors and investors should have asked more questions, sooner.

But the overarching lesson of this year’s banking stress is one that has been offered a number of times in the past. Finance is built on trust, which can take a long time to establish but only moments to lose. The psychological reaction that attends the loss of confidence is powerful; in the current day, its expression is accelerated by modern communications and banking platforms.