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High indebtedness could cause next financial crisis says banker

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High levels of debt held by countries and institutions coupled with trade tariffs could spark the next major financial crisis.
On the 10th anniversary of the collapse of Lehman Brothers which sparked the worldwide economic crisis in 2018, the President of the Portuguese Banking Association, Fernando Faria de Oliveira warned that the fragmentation of the European party system would not help in the wake of another economic collapse.
The banker who in 2008 headed state bank Caixa Geral de Depósitos, said that the consequences of September 2008 were a loss of market confidence, a devaluation of financial assets as a result of market collapse and the growing difficulty of banks finding finance once the interbank lending market stopped lending.
However, he said that Portuguese banks’ relatively low level of exposure to toxic assets, including subprime, meant that banks in Portugal had faired better than many banks in other European Union member states during that crisis.
Fernando Oliveira says unlike other countries, Portugal didn’t have banking crisis which led to an economic recession but rather a European recession over the sovereign debt crisis which had an impact on the banking system.”
The scenario was made worse by the fact that a €12Bn credit line through the European Central Bank’s Financial Assistance Programme to recapitalise the banks had only been used in half measures.
“The capitalisation problem was made worse by high levels of credit default, a problem exacerbated by a long and painful recession and sluggishness in the legal and fiscal solutions for treating bankruptcies and debt restructuring,” he told ECO.
But the banker says that 10 years on the lessons of 2008 have not been learnt. “Indebtedness continues to rise by up to 30% of GDP (the increasing public debt in advanced economies is partly due to the central banks buying debt) and is worrying.”
In this scenario, “Various specialists believe that the next crisis could result from this high indebtedness and from the real estate sector (ether directly or indirectly), protectionism and a poorly regulated financial system.”


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