Global Equity Sell-Off Deepens as Soft U.S. Economic Landing Questioned; Impact for Banks Manageable

This commentary reviews the implications to banks globally following the significant market downturns experienced since last Friday.

-- Friday's weaker than expected U.S, jobs report sparked an equities sell-off that has carried into Monday. Indeed, Japanese equities declined by 12% on Monday reducing banks' capital buffers, Europe has sold off and U.S. futures point to another significant decline fanning fears of a hard landing.

-- Despite the sharp declines in stock markets globally, we still view banks in the US and major markets as being resilient, having sufficient capital and liquidity buffers even if the stock market continues to decline and the U.S. falls into a recession.

-- Our biggest concern is that the market sell-off becomes a self-fulfilling prophecy causing corporate CEOs to cut back on investments and consumers to pull back on spending leading to further cuts and a recession.

"Despite the sharp declines in stock markets globally, we still view banks in the U.S. and other major markets as being resilient, having sufficient capital and liquidity buffers even if the stock market continues to decline or the U.S. falls into a recession," said Michael Driscoll, Managing Director - Global Financial Institution Ratings.