FIRST PERSON Confidence

This surely exasperates US regulators. After guaranteeing depositors in the two failed banks after a frantic weekend of strategizing, market confidence in the banks continues to sag.

Across stock exchanges across the globe, banking stocks fell the last few days. Depositors began shifting their money from the smaller banks to the bigger ones. Moody’s Investor Services downgraded all US banks to negative outlook in the face of all the turmoil.

We are not yet in a global financial crisis; but we seem to be heading there.

The bailout of depositors (as distinguished from the bailout of banks that happened in the 2008 financial crisis) is expected to boost inflation. The continuing hike in interest rates, a major factor explaining the tremendous capital pressure on banks, was intended precisely to curb inflation.

Although the US Fed nearly tripled the guiding rates over the past year, the strategy has not quelled inflationary pressures. The dropping unemployment rate in the US, while a positive trend at first glance, also tells us that monetary policy has not curbed demand-side expansion – the underlying cause of the present inflation trend.

Both the Silicon Valley Bank and Signature Bank, closed over the past few days, may be “small” banks. But no institution is too small to cause ripples across the world’s markets.

Responding to the closure of “small” US banks, our own stock market sunk on the first trading day of the week, following regional trends. All the major US banks are suffering from declines in their stock prices. At the start of this week, we see financial stocks sinking across the globe.

When the stock price of a bank drops, it results in capital inadequacy for its operations. It can borrow less against its capital and thus becomes vulnerable to liquidity problems. In this age of social media, Twitter-driven bank runs happen a lot more quickly. We saw that in the events that led to Silicon Valley Bank’s quick collapse.

The US government recognizes the peril at the doorstep. Regulators have hastily organized a fund banks can borrow from using the Treasuries and bonds they have on hand. The fund provides a ready buyer for low-interest bearing bonds that are quickly losing value in the present high interest rate regime.

It was these low-interest bearing Treasuries and bonds that brought problems for Silicon Valley Bank and Signature Bank. They bring problems to all other banking institutions as well.

We will see next week if the US Fed continues its program of interest rate hikes. Whatever the US Fed decides to do in the wake of two significant bank failures will influence the decisions of central banks across the globe. The US Fed chairman did signal an aggressive inclination.

The central banks are in a Catch-22 situation. If they do not raise interest rates further, inflation will continue to run rampant. If they raise rates, they could put more financial institutions in jeopardy.

In a word, the global financial system is not yet out of the woods – even if central banks have proven adept in responding quickly to emerging problems. The dynamic is complex. We could yet trip into another global financial crisis.

The banking business relies on the confidence of depositors. They will put their savings in a bank only when they are confident they could draw their money any time they need it. When that confidence is shaken by bank failure, there is little regulators can do simply tweaking regulations.

The global financial system is as much a psychological game as it is an economic one. Over the next few days, “market sentiment” is a phrase we will likely encounter more frequently than usual.

Tough job

No one envies Joe Zaldarriaga’s job. The Meralco spokesman represents the country’s biggest power distribution company. It is the company that finally collects from consumers not only the money that goes to the distributor but also the money that goes to generation and transmission companies, the feed-in tariffs, the value added taxes and the other universal charges. It is the company that cuts service when consumers fail to pay on due date; the one that has to explain to the public why energy prices are rising.

In addition, the Meralco spokesman must also lead in public education regarding more economical energy use as well as efforts to increase renewable energy capacity. He needs to explain to a harried public the global energy trends underpinning price movements as well as the quirky exchange rate that ultimately affects electricity pricing. He needs to keep his audience abreast on such arcane stuff as the Malampaya gas supply and the decision of the Indonesia government to curtail coal exports. All these eventually reflect on the electricity bills.

In the recently concluded Anvil Awards given out by the Public Relations Society of the Philippines (PRSP), Joe and his team garnered nine citations for campaigns and programs that influence the behavior of the energy-consuming public. Those awards are well deserved.

Joe Zaldarriaga is a consummate public relations person. He musters all the patience his tough job requires: entertaining all questions from consumers across all media platforms.

He needs to be constantly creative to get his message across. There are times he needs to sing and dance in television plugs. But he manages without appearing to be harried.

There are moments when consumers get prickly and annoying confronting the Meralco spokesman. But never once did Joe lose his cool.

His bosses hope he will remain in this job forever.