Global Banking Turmoil Raises Concerns for Economic Stability

The global banking system appears fragile as the rapid increase in interest rates used to tackle soaring inflation sends shock waves through the City. While the problems are limited to a few troubled banks, the situation is not entirely without danger. Bank shares and bonds have sold off sharply, driving up the cost of funding even for supposedly strong and stable lenders. The big worry is that a higher cost of funding for banks will be passed on to households and businesses, leading to a credit crunch. The failure of the recovery from the last crash would suggest a change in tack is required.