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February 29, 2008

Small US banks in danger of collapse

by Gill Montia

Story link: Small US banks in danger of collapse

Shares on Wall Street fell yesterday, after the chairman of the US Federal Reserve, Ben Bernanke, spoke publicly on the failings of the US banking system.

The value of the dollar fell sharply in response, to a record low against the euro, which rose above $1.52.

Addressing the Senate Banking Committee, Mr Bernanke rejected suggestions that the US economy is about to enter a period of high inflation and stagnant growth, but he admitted that inflationary pressures were restricting the central bank’s ability to support economic growth.

According to Mr Bernanke: “We are facing a situation where we have simultaneously a slowdown in the economy, stress in the financial markets, and inflation pressure coming from these commodity prices abroad.”

David Bloom, currency strategist at HSBC says the comments imply that “the Fed is happy with a weak dollar and not worried about inflation as much.”

Mr Bernanke went on to predict that some smaller US banks were likely to collapse, while in Washington, President Bush has reiterated his belief in a “strong dollar policy”, adding “I don’t think we’re headed to a recession.”

US growth in the final quarter of 2007 measured 0.6% at an annual rate, down from 4.9% in the previous three months.

 

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