Global Economic Growth to Slump to Three-Decade Low by 2030, World Bank Says

Economic

Summary:

World economy to hit 'speed limit' — the maximum long-term rate at which it can grow without sparking inflation — amid banking crises and recessions.

The global economy is set to reach its “speed limit” — the maximum long-term rate at which it can grow without risking excess inflation — and slump to a three-decade low by 2030, according to the World Bank.

Systemic banking crises and recessions are expected to have lasting effects on the world's economic growth and development.

Between 2022 and 2030, the average global potential gross domestic product growth is predicted to decline to 2.2 per cent a year, down by about a third from the 3.5 per cent growth rate during the first decade of this century, the Washington-based lender said in its latest report on Monday.

For developing economies, the decline will be equally steep, dropping to 4 per cent annually over the remainder of this decade from 6 per cent a year between 2000 and 2010.

These declines will be much steeper if these countries face a global financial crisis or a recession, the multilateral lender warned.

“A lost decade could be in the making for the global economy,” said Indermit Gill, the World Bank’s chief economist and senior vice president for development economics.

“The ongoing decline in potential growth has serious implications for the world’s ability to tackle the expanding array of challenges unique to our times — stubborn poverty, diverging incomes and climate change.

The warning comes amid a tough macroeconomic climate as banking crises in the US and Switzerland and the pivot to higher interest rates to fight inflation have increased risks to financial stability, according to the International Monetary Fund.

High inflation, the impact of the Ukraine-Russia war and elevated global debt levels continue to pose risks for the global economy.

However, the long-term global economic decline expected by the World Bank is reversible, it said.

“The global economy’s speed limit can be raised — through policies that incentivise work, increase productivity and accelerate investment,” Mr Gill said.

An ambitious policy push is needed to boost productivity, increase the labour supply, ramp up investment and trade, and harness the potential of the services sector, the World Bank report said.

Potential GDP growth can be increased by as much as 0.7 percentage points — to an annual average rate of 2.9 per cent — if countries adopt sustainable and growth-orientated policies, it said.

This would convert an expected slowdown into an acceleration of global potential GDP growth.

“We owe it to future generations to formulate policies that can deliver robust, sustainable and inclusive growth,” said Ayhan Kose, lead author of the report and director of the World Bank’s prospects group.

“A bold and collective policy push must be made now to rejuvenate growth. At the national level, each developing economy will need to repeat its best 10-year record across a range of policies. At the international level, the policy response requires stronger global co-operation and a re-energised push to mobilise private capital.”

“An extraordinary series of setbacks has brought the world to another crossroads. It will take an exceptional mix of focused policies and effective international co-operation to revive growth,” David Malpass, the World Bank's President, said in the report's foreword.

The report highlighted specific policy actions at the national level to help boost long-term growth prospects.

First, it recommended that countries align their monetary, fiscal and financial policies to moderate the ups and downs of business cycles. Policymakers should prioritise taming inflation, ensuring the stability of the financial sector, reducing debt, and restoring fiscal prudence. This can help countries attract investment by boosting investor confidence in national institutions and policies, the report said.

Secondly, it urged countries to ramp up investment in areas such as transportation, energy, climate-friendly agriculture, manufacturing and land and water systems. Investments aligned with key climate goals could improve potential growth by up to 0.3 percentage points per year and strengthen resilience to natural disasters in the future, it said.

Thirdly, countries should slash trade costs — mostly related to shipping, logistics and regulations — which can double the cost of internationally-traded goods today. Countries with the highest shipping and logistics costs could cut their trade costs in half by adopting trade-facilitation measures, the World Bank said. It added that trade costs can be reduced in climate-friendly ways — by removing the current bias towards carbon-intensive goods found in many countries’ tariff schedules and by removing restrictions on access to environmentally-friendly goods and services.

Fourthly, nations must consider capitalising on the services sector, which could become the new engine of economic growth. Exports of digitally-delivered professional services related to information and communications technology climbed to more than 50 per cent of total services exports in 2021, from 40 per cent in 2019. The shift could generate important productivity gains if it results in better delivery of services, the lender said.

Finally, countries should aim to increase labour force participation: About half of the expected slowdown in potential GDP growth through 2030 will be due to changing demographics — including a shrinking working-age population and declining labour force participation as societies age.

Boosting overall labour force participation rates could increase global potential growth rates by as much as 0.2 percentage point a year by 2030, the report said.

In some regions — such as South Asia and the Middle East and North Africa — increasing female labour force participation rates to the average for all emerging market and developing economies could accelerate GDP growth by as much as 1.2 percentage points a year between 2022 and 2030, the World Bank said.

Source: The National News

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Kevin Du

At a metal recycling facility in central England, thousands of tonnes of shredded scrap from cars to construction debris arrive daily to be processed into individual materials and sold.

A mixture of metals, plastics and other materials are sent through an elaborate maze of more than 100 conveyor belt systems where they are further separated in several different ways - from floatation in water to using magnets and robots.

These are just a few of the new technologies utilised by European Metal Recycling (EMR) at the site in Oldbury - a town near the city of Birmingham - as the global company strives not only to make its processes more efficient and profitable but also to do its bit for the environment.

Having started out eight decades ago with one scrapyard, the family-owned multinational firm has now set its sights on the difference it can make in the global green transition, by reducing the need to mine and refine metals.

"You sit there with some pride that you're making products that have an impact," said EMR chief executive Chris Sheppard.

"The need to move the world to net zero and 'nature positive' is effectively going to require something like the green industrial revolution," he said.

As demand rises for clean technologies such as electric cars and solar panels, concerns about the environmental impacts of mining and producing the required metals are growing, from damage to biodiversity to rising emissions.

Recycling will prove ever more important as the global race to secure critical minerals heats up, insiders say, and as countries seek a secure supply for crucial metals while also trying to reduce the carbon footprint of their production.

In Europe, for example, 40% to 75% of the clean-energy-related metals needed for products like electric vehicles and wind turbines could be sourced through recycling by 2050 if the continent boosts investment in recycling and makes it more efficient, industry group Eurometaux said last year.

Meanwhile, production of steel - the world's most widely used metal - is responsible for between 7-9% of the global carbon dioxide emissions that are the primary driver of climate change, according to the World Steel Association.

Using one tonne of recycled steel instead of creating new steel avoids 1.5 tonnes of CO2 emissions, as well as mining 1.4 tonnes of iron ore, 740 kg of coal and 120 kg of limestone, according to Bellona, an environmental NGO.

However, the last comprehensive research into metal recycling rates - published in 2011 in the Journal of Industrial Ecology - found that only 18 out of 60 metals studied had global recycling rates above 50%.

Its lead author Thomas Graedel, an industrial ecologist at Yale University, said recycling metals has a "very important and underappreciated" part to play in the global green transition.

"We do very complicated things to get these materials into play in the first place," he said. "Often we use them once and, in one way or another, they're lost to technology."

Modern Materials

Founded in the 1940s by Sheppard's great-grandmother after she left wartime London and moved to northern England, EMR now has about 160 sites across the United States and Europe and had a turnover of about 4.7 billion pounds ($5.7 billion) in 2021.

As firms such as EMR seek to grow, a major challenge is the nature of modern materials used in products from smartphones to cars, because of how hard they are to break down and recycle.

Graedel of Yale cited a 2021 study from the Massachusetts Institute of Technology and U.S. carmaker Ford that found that typical modern cars include 76 different chemical elements.

"I doubt that automobile designers have ever taken a trip to an auto recycling centre," he said.

"Maybe we don't need to have the very best performance if the trade-off is more climate impact."

EMR is investing in research aimed at recovering as many materials as possible, meaning the company can generate more profit while putting less waste into landfills - a practice that is costly and harmful for the environment.

"Everything we're trying to do is to minimise the environmental impact," said Andy Goodyer, general manager at EMR Oldbury.

Sheppard said the company is also in discussions with manufacturers - such as designers at car companies - to discuss how their products might be formulated in a way that ultimately makes them more straightforward to recycle.

"If they designed the cars with a view to the end of life ... you'd be able to recycle them much easier," he said.

End of Life

Recycling processes for traditional metals like copper and aluminium are more established than those for metals required for the energy transition such as lithium and 'rare earth' metals, according to the International Energy Agency (IEA).

Rare earth metals are used in low concentrations to make hi-tech devices - such as neodymium used to make powerful magnets for products like electric vehicles and wind turbines.

Many of these metals are hard to separate from surrounding materials and require new recycling technologies. Often there is a lack of information about how much of each material is used in products and where it is located, experts say.

Luca Ciacci, an industrial chemistry expert at Italy's University of Bologna, said new techniques like material flow analysis can track the journey of a single element from extraction through production, use, and to the end of its life.

"So in this way we can get a reliable estimate of how much material is available for recycling and where it is," he said.

These are "fundamental questions" for the development of the recycling industry, Ciacci added.

Experts also say recycling technologies and expertise need to be developed in the places where products reach their end of life, which is often on another continent - far from where they were built and where people understand how they were assembled.

"We need to get competent workers in recycling centres where products end up being used," said Graedel from Yale.

"It is quite uneconomical and inefficient to send products around the world to be recycled."

Green Premiums

In the short-term, recycling will play only a minor role in meeting demand for some metals like lithium, as products containing them - such as lithium-ion batteries in electric vehicles - are still early in their life-cycle, according to Jamie Speirs, an energy researcher at Imperial College London.

Speirs said strong government regulations can ensure recycling infrastructure develops in the meantime.

He gave the example of lead, which has some of the highest rates of recycling among metals due to regulations globally designed to stem health concerns around lead-acid batteries.

Analysts say another key driver of recycling growth is the prices companies such as EMR can command for their recycled materials, and the prices paid to those supplying scrap.

"It will come to you in greater volumes if the price is high," said Sheppard.

EMR anticipates that green premiums will mean that recycled metals become cheaper - and ultimately more profitable for companies - than producing virgin materials, he explained.

"It's really as simple as that," he added.

Source: Bdnews24

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Devin

Sunday's news that Lebanon's residents woke up in two different time zones led to jokes about "Muslim time" and "Christian time" but it also exemplified some of the problems facing the state.

The government announced that the usual start of Daylight-Saving Time would be delayed until April 21. Although no reason was given for the announcement, a leaked video of senior officials discussing the move published by a Lebanese media outlet suggested that postponing the time change until the end of Ramadan would allow Muslims to break their fast an hour earlier.

Thankfully, the move was reversed yesterday but the fact that such an important announcement was made with no independent oversight points to the ad hoc nature of decision making in Lebanon and the weakness of its institutions. Justice Minister Henri Khoury's condemnation of the decision laid bare this internal turmoil.

In a country with as diverse a population as Lebanon's, this near-unilateral decision quickly led to disarray as some communities, ministries, schools and religious institutions refused to comply, instead putting their watches and schedules forward one hour as usual. That the decision was made despite concerns about its possible effect on essential infrastructure such as flight times is worrying.

The result was that work meetings, medical appointments and transport schedules were to run on two separate times. Meanwhile, Lebanon's mobile networks were telling customers to change their phone's clock back manually if they wanted to abide by Lebanese government time.

The postponement of the time change could have led to sectarian tensions rising, with the government appearing to try and curry favour with some of the country's biggest religious communities but exasperating many other citizens in the process.

It is not unknown for countries to make unilateral decisions to change their time standards. Turkey, for example, stopped turning its clocks back in 2016. But the situation that unfolded over the weekend in Lebanon is the first in which residents living in a single time zone were to operate on two different times. One satirical graphic trending online depicted the country partitioned into more than a dozen time zones, depending on which community had a majority in that area.

However, the fact that such confusion over something so important took place in a country going through one of the worst economic crises in modern history is no laughing matter. One Twitter post shared on Sunday showed two Lebanese women talking about the daylight-saving move, saying: "What does it matter what time you eat if you can't afford to eat?"

Lebanon's multiple time zones would have matched the myriad currency exchange rates that its people have to try and navigate every day.

Sadly, every such misstep in Lebanon – no matter how quickly they are rectified – risks generating more passivity from potential donors, whose funding and input will be necessary to try to salvage the economy. Many would-be allies among the international community are watching carefully to see signs of political and institutional reform in Lebanon before committing to help. Being unable to tell the time will hardly reassure them.

Source: The National News

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Cohen

The Federal Deposit Insurance Corp (FDIC) and its flagship deposit insurance fund have been active since the Great Depression to provide an orderly resolution for failed banks and to reimburse certain customer accounts.

The FDIC said on Monday it would backstop a deal for regional lender First Citizens BancShares to acquire failed Silicon Valley Bank, triggering an estimated $20 billion hit to a the deposit insurance fund.

Here's what you need to know about the fund and how it works:

What is the deposit insurance fund?

The FDIC's deposit insurance fund helps to fulfill the agency's guarantee of bank deposits up to $250,000. In the event an insured bank fails, the FDIC uses the deposit insurance fund to pay back customers who maintained accounts under the limit.

In the case of Silicon Valley Bank and Signature Bank - which also failed shortly after the collapse of the former - the U.S. government determined that a "systemic risk exception" applied and reimbursed all customers-- including those whose deposits exceeded the $250,000 limit-- in an attempt to prevent further contagion to the banking system.

Throughout the FDIC's history, the insured deposit amount has been raised multiple times, most recently in the wake of the 2008 financial crisis when lawmakers passed legislation raising the cap from $100,000 to $250,000.

How is it funded?

The deposit insurance fund is funded through fees the FDIC charges insured banks, as well as the interest the FDIC earns on its investment of those funds in U.S. government obligations, like Treasury bills.

The fee a bank pays to the FDIC on a quarterly basis varies depending on a bank's liabilities and its risk profile. As of the end of last year, the deposit insurance fund balance stood at $128.2 billion.

In October, the FDIC finalized a rule to increase initial base deposit insurance assessment rate schedules by 2% starting in June.

The FDIC by law is required to resolve failed banks using the least costly option to minimize losses to its deposit insurance fund.

What happens when there are losses to the fund?

In the cases of Silicon Valley Bank and Signature Bank, any losses to the deposit insurance fund will be covered through a "special assessment" fee on banks, according to the FDIC.

The FDIC said on Sunday that it estimates the failure of Silicon Valley Bank will cost the deposit insurance fund $20 billion, but that the exact cost will be determined at a later date.

What is loss sharing?

The FDIC has the option to enter into a loss-sharing agreement with a firm that purchases a failed bank's assets. Under such an agreement, the FDIC absorbs a portion of the loss on a certain pool of assets, effectively sharing the loss along with the purchaser of a failed bank. The agency occasionally uses this tool to facilitate the sale of a failed bank by helping the acquirer avoid heavier losses.

The FDIC and First Citizens entered into a loss-sharing agreement on the commercial loans First Citizens purchased from Silicon Valley Bank.

If First Citizens makes any recoveries on those commercial loans, the FDIC will receive a portion of those recoveries.

What else will the FDIC get out of the first citizens deal?

In its announcement on Sunday that First Citizens would purchase Silicon Valley Bank's deposits and loans, the FDIC announced that as part of the deal, it would be receiving equity appreciation rights in First Citizens worth up to $500 million.

Beyond that, the FDIC will receive 3.5% annual interest on a 5-year $35 billion note that First Citizens issued to the FDIC as financing to buy the assets from the FDIC.

Source: Reuters

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Owen Li

Markets seem caught between the devil and the deep blue sea.

Easing concerns about bank stability this week have merely re-introduced interest rate risk, reining in any suggestion of a runaway relief rally as the first quarter closes on Friday.

While nerves persist over March bank failures and contagion fears, central banks are still faced with punchy growth and inflation and will likely switch attention back to cooling that down once they're assured banks can take the strain.

While a possible credit crunch from the whole disturbance may do that job for them, the overall impact on new lending and confidence is as yet unclear.

The extent to which depositors and the public at large have been spooked by the episode may be at least partly revealed by March U.S. consumer confidence numbers out later on Tuesday.

But interest rate markets are already correcting as signs of stability in the banking arena emerge.

The chance of another Federal Reserve rate hike in this cycle has moved back to 50% - up from just 30% early on Monday - and two-year Treasury yields regained a foothold back above 4%. Stress-related dollar demand ebbed somewhat.

The mood shift followed Monday's news that regional lender First Citizens BancShares had scooped up the assets of failed peer Silicon Valley Bank - sending First Citizens' stock price up more than 50% and lifting U.S. regional bank stocks at large as regulators backstopped the deal.

U.S. Treasury undersecretary for domestic finance, Nellie Liang, is due to tell Congress later on Tuesday the government will continue to prevent contagion in the banking sector as warranted and ensure Americans' deposits are safe.

Fed Vice Chair for Supervision Michael Barr said the banking system is "strong and resilient" but the Fed was reviewing its actions leading up to the collapse of SVB and how to tighten rules on banks going forward.

Stocks were have been buoyed by developments but gains remain tentative and Wall St futures were in the balance ahead of Tuesday's open.

European banks also rose 1%, adding to Monday's 1.4% gain. Swiss bank UBS climbed 1.5% after CEO Ralph Hamers said the bank sees its government-orchestrated takeover of Credit Suisse as a growth opportunity, in an internal memo seen by Reuters.

The European Central Bank's top supervisor Andrea Enria said on Tuesday he was concerned by a sudden unexplained selloff in Deutsche Bank shares late last week, which showed investors were on edge and could be spooked by moves in the relative small and illiquid market for credit default swaps.

Enria called for CDS to be centrally cleared.

But in illustration of the conundrum facing central banks over whether to focus on inflation or banking stress, Bank of England Governor Andrew Bailey signalled on Monday that rate-setters would not be swayed unduly from the inflation fight.

"With the Financial Policy Committee on the case of securing financial stability, the Monetary Policy Committee can focus on its own important job of returning inflation to target," said Bailey, who added in testimony to the British parliament on Tuesday that there was no obvious stress in the UK system.

Elsewhere, crypto shares were hit on Monday after the Commodity Futures Trading Commission said crypto exchange Binance and its CEO and founder Changpeng Zhao have been sued by the CFTC for operating an "illegal" exchange and a "sham" compliance program. Bitcoin slipped back below $27,000 on Tuesday.

Shares of BP added 1.9% after the British oil firm and Abu Dhabi National Oil made an offer to jointly acquire 50% of Israeli offshore natural gas producer NewMed Energy for around $4 billion.

And China spent $240 billion bailing out 22 developing countries between 2008 and 2021, with the amount soaring in recent years as more have struggled to repay loans spent building "Belt and Road" infrastructure, a study published on Tuesday showed.

Key developments that may provide direction to U.S. markets later on Tuesday:

* U.S. March consumer confidence, Richmond Fed Feb business survey, Dallas Fed service sector survey, Fed wholesale and retail inventories, Feb trade balance, US Jan house price index

* U.S. Federal Reserve Vice Chair for Supervision Michael Barr speaks; Bank of England governor Andrew Bailey and other BoE policymakers testify to parliament on banking turbulence; European Central Bank chief Christine Lagarde speaks

* U.S. Treasury auctions 5-year notes

* U.S. corporate earnings: Micron Technology, McCormick, Walgreens Boots Alliance Swinging Between Bank Fears and Rate Risks _1

Swinging Between Bank Fears and Rate Risks _2

Swinging Between Bank Fears and Rate Risks _3

Source: Reuters

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Thomas

Political

Piles of rubbish on street corners and burning bins casting a smoky pall over city vistas have become the visual symbols of resistance to French President Emmanuel Macron's pension reforms.

Mr. Macron is said by aides to be braced for the turbulence that is buffeting his presidency to continue and intensify. Already he has been denied the pomp and splendour surrounding King Charles III on a first foreign visit at Versailles.

This is a crisis that Mr. Macron entered with his eyes open for the trouble it would cause his government and, perhaps, to his efforts to create a legacy.

There were already painful protests against the measure, which raises by two years to 64 the retirement age for the French. While the bump up in the qualifying age is modest, Mr. Macron has cast this change as an important structural reform for the French economy.

Without taking this step, the cost to the public of paying out pensions is set to top 15 per cent of GDP. The pinch point has already come, as there are now 17 million French pensioners – up by 4 million on the figure in 2004.

Events over the weekend put France on a knife-edge. There are often politically damaging demonstrations against new policies in the country. Any presidency faces the risk of permanent damage if it gives into the calls for abandonment or if does not.

There are good reasons why the French system places a particular burden on the government finances. Unlike other comparable countries, Paris has not pursued automatic private enrolment for employees to provide for their own pensions. Even corporate schemes are tied to the state system in a way that would be unimaginable for most countries.

So a shake-up is essential. A note by Allianz Research at the start of the year said Mr. Macron's reforms would not go far enough. Pointing to demographic trends, it said there would be 60 people aged over 64 for every 100 people who were of working age (between 23 and 63) by 2050. To stand still, the French would have to raise the retirement age to 67 by 2050.

What's on the table would add 1.6 million people into the workforce. This development could overcome the problems with ageism currently seen in France. There is 6 per cent unemployment in the 55-64 age bracket among French workers, but the rate is only 3 per cent in Germany.

Defending the reform is a red line for the president, who has also offered talks with the unions and demonstrators on workplace issues.

More than 1 million on the streets of 20 cities is hard to write off as a spasm. The likelihood is that it will be the last big domestic overhaul of a presidency that still has four years left to run. Circumstances have changed since Mr. Macron won re-election last year. The loss of the governing party's majority in the National Assembly robs him of a platform to promote his agenda.

The president was forced to use Article 49, paragraph 3 of the constitution to ram his pension proposal through last week. It is a democratic instrument that provides for a vote of no confidence in the government as a proxy for ratification. The 49.3 article has been used a hundred times since it came into being in the 1950s. Charles de Gaulle used it to press ahead with developing the nuclear deterrent.

Mr. Macron won the no-confidence vote, but the manner in which the provision was used has escalated the clash with the streets. This has made him vulnerable as his poll ratings have slipped below 30 per cent. Aides are worried about the unforeseeable twists when pressure builds on an administration.

Ten years ago, a "Leonarda" moment defined the presidency of Francois Hollande, when his government was keen to show toughness against migrants and people without papers. Officials tracked down a young Roma girl called Leonarda Dibrani, then 15, on school trip, snatched her and deported the pupil with the rest of her family to Kosovo. The anti-Roma campaign had gone too far for public opinion, and Mr. Hollande's government crumbled in the backlash. His decision to allow Leonarda to return to the French school to complete her education, but not with her family, satisfied nobody. A weak presidency faced a baked-in loss of power after one term.

As a result of its revolutionary history, there is an idea in France that demonstrations can be a means of changing the direction of the government. When public opinion backs protests, it can become accepted that 49.3 was invoked to a decision against the will of the people. This is the danger Mr. Macron must somehow avert in the days ahead.

When he first came to power, Mr. Macron observed that he would like to be a "Jupiterian" president. Like the Roman god, he would display his will by throwing down thunderbolts that would cajole the system.

During the pensions debate, opposition legislators twisted that Roman reference to hold up posters of the corrupt and wasteful emperor Caligula. The French newspaper Le Monde, with a hint of despair, said the deeper lesson of the crisis was an absence of leadership to look up to across the country. "An isolated president, a weakened prime minister, an overheated National Assembly, streets in turmoil," an editorial listing its woes said.

Roiling or escalating violence will surely drain support for the protests, however, and Mr. Macron must ensure the state maintains its authority. By doing so steadily and with an open hand to his opponents, the French leader can still defend his very necessary reforms.

Source: The National News

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Alex

The most extraordinary outcome of the March banking shock would be if the problem dissipated quickly.

Many people hope the crisis of confidence infecting global banking this month can be repelled almost as quickly as it appeared. After all, regulators and policymakers are faster and more comprehensive in their response since the Lehman Brothers bust 15 years ago.

The steps taken by U.S. and Swiss authorities to shut off contagion have put out the flames of the current crisis. If the economic impact can be limited too, this time might be different.

But that may simply be wishful thinking, certainly if history is anything to go by. Bank crises tend not to be resolved in weeks or months - they smolder for years.

As banking is built on confidence, a sudden loss of trust can take a long time to rekindle - no matter how swift and bold authorities' fire-fighting measures are.

And lack of confidence - from customers, investors or counter-parties - can be fatal to a bank if its capital cannot absorb losses or it cannot cover deposit outflow. A run on one can destabilize many others.

Don't Hold Your Breath - Banking Crises Last Years_1

It can take years for bad loans to be wound down and impaired assets to be disposed of, and as we are seeing now some 15 years after the Great Financial Crisis, central banks' emergency measures can stay in place for a very long time.

As an International Monetary Fund paper in 2020 stated baldly: "Financial distress typically lasts several years and is associated with large economic contractions and high fiscal costs."

S&L Debacle

The easy comparison for any banking or market turmoil is the GFC of 2007-08. But crises don't have to be equal to or worse than the world's most calamitous financial disaster in a century to be extremely damaging.

Others down the decades share common traits - rising interest rates, lax lending standards, poor oversight, or deregulation - and are just as instructive of how long investors can expect the current problems to rumble on.

The U.S. 'Savings and Loans' (S&L) crisis of the 1980s and 1990s is a case in point.

As the Paul Volcker Fed jacked up interest rates to quell the inflation that had emerged in the 1970s, short-term funding costs for many U.S. 'thrift' lenders exceeded the interest they were receiving on their fixed-rate loans like mortgages.

Coupled with deregulation and lax lending standards, the crisis reached boiling point in the mid-1980s and around a third of the country's S&L firms - over 1,000 in total - would go bust.

The crisis radically redrew the U.S. financial sector, ended up costing the U.S. taxpayer around $160 billion and, according to some analysts, contributed to the 1990 recession. Most striking was duration of the problems - they stretched from the early 1980s right through the mid-1990s.

"Not having a clue"

In a G30 paper 'Lessons Learned from Previous Banking Crises: Sweden, Japan, Spain, and Mexico' published in 2009, the policymaking authors noted that four factors are common to all financial crises - inherent weaknesses in the financial system; some event highlights these weaknesses explicitly; contagion spreads; resolution measures are applied.

Contagion loomed large over Sweden's 1990-94 crisis as much as any - six of the country's largest seven banks, with a combined market share of around 85%, were affected, as well as other financial institutions.

Interest rates in Sweden were raised to combat high inflation, which led to slower economic growth, falling asset prices, and an increasingly challenging environment for banks and other lenders. Sound familiar?

Another familiar echo is banks being unaware just how deep and far their risk-taking extends. As former Riksbank governor Stefan Ingves wrote caustically in the G30 paper: "Many pundits are concerned that banks' behavior may be influenced by moral hazard, but 'not having a clue' seems to be as important in many cases."

Sweden's crisis 'only' lasted four years. By some measures, Japan has been in a banking and financial funk to varying degrees for the best part of 30 years following the housing and stock market busts of the early 1990s.

Don't Hold Your Breath - Banking Crises Last Years_3

Urban land prices in Japan only started rising in 2017 and are still 65% below their 1991 peak, and the benchmark Nikkei 225 stock market is still 30% below it 1989 peak.

Granted, Japan is an outlier due to its unique mix of deflation, demographics, and debt, meaning the country has effectively been in a liquidity trap for decades.

But other banking crises follow the same playbook, even if their outcomes are not as extreme.

"Liquidity can be provided easily by central banks but losses on assets can take a long time to recoup," notes Chris Iggo at AXA Investment Managers in London.