“There Are Going To Be Shocks” – Barclays CEO Warns Another Financial Crisis Is Likely
Barclays CEO Jes Staley took a few days off from his battle to save Europe’s last functional global investment bank to travel to Davos this week, where he participated in a handful of interviews with Bloomberg and CNBC, and offered an interesting – if slightly self-serving – prediction about whether the unprecedented levels of debt rattling around the global financial system will result in another crisis like what happened ten years ago.
While he believes another great financial crisis is more or less inevitable, Staley insisted that, this time around, his industry wouldn’t be the cause. In fact, it might just be a buffer against the worst of the fallout. Because global banks have shrunk their balance sheets since the crisis (largely at the behest of regulators), they could end up shielding the global economy when credit markets – which have been fueled in part by non-bank lenders (i.e. shadow banks) – seize up.
“This time, there’s a chance the banks will be the buffer, as opposed to the cause” of the crisis, Staley, who has been the British bank’s chief executive officer since 2015, said in a Bloomberg Television interview with Francine Lacqua from the World Economic Forum in Davos, Switzerland.
Echoing a warning that has been featured in these pages more than once (and as recently as last week when we wrote that “An Unexpected Development Could Crush The Leveraged Loan Market”), Staley cited the flow of credit into collateralized loan obligations as a sign of the growing risks in the credit market, and pointed to the freeze-up in high-yield issuance in December as an indication of what a future “credit shock” could look like.
But destabilizing credit risks aren’t confined to corporate balance sheets. The growing sovereign debt burden could also become a problem.
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