Although banks generally have a more robust anchoring than the three other asset classes, increased volatility should be monitored carefully over the next few weeks (even though we are nowhere close to the type of banking dislocations that crippled the global economy in 2008-09).
Should the banking sector become unhinged, the flow of funds to companies and households would slow, and international trade financing would be more expensive and less accessible. It also would further restrict the already limited appetite of broker-dealers to alter their balance-sheet inventory to accommodate investors seeking to reposition their portfolios.
The trouble with banks, though notable, has been containable so far. But should it evolve into a much sharper downturn, there could be serious consequences for a slowing global economy and for financial markets that have generally had a lousy start to the year. Those are risks that the global economy and markets can ill afford at the moment.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.