European Union GDP

European Central Bank raises interest rate by another 0.50% despite turmoil in banking sector

European Central Bank increases interest rate

The European Central Bank (ECB) announced a further rate increase of 50 basis points, despite the current backdrop of market turmoil in the banking sector.

The ECB had previously signalled it would be raising rates again at its March meeting – and it did!


Initial pressures on the banking sector emerged last week, when U.S. authorities deemed Silicon Valley Bank insolvent. However, ECB officials have played down the contagion affect likely on European banks saying that the situation with SVB was very different to that of European banks. SVB primarily catered for the banking requirements of the tech and health care industries.


Silicon Valley Bank and Signature bank depositors in the U.S. were protected after Federal level intervention. However, First Republic bank and other smaller regional banks have continued to experience difficulties and this despite the announcement from U.S. regulators over the weekend of additional support.

In Europe, some relief across the banking sector was achieved after Credit Suisse said it will borrow up to $54 billion from the Swiss National Bank to shore up its balance sheet.

It has been widely reported that Credit Suisse bank had already been under pressure through lack of profits and of other well documented issues in recent years.

Should we worry?

Will central bank intervention stem the potential flow of contagion from bank to bank? Or will the fear of a repeat of the 2008 banking crisis create a new banking crisis?

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