When, during 2007 summer, banks realized they had, in their books, assets which were constituted with irrecoverable loans, financial planet started to be shaken. It will be necessary to wait for Lehmann bankruptcy, a year later, to assess the size of the disaster which provoked the biggest post-war financial crisis and a major world recession. Are we on the brink of the same situation? Market value of the banking sector has fallen since the beginning of the year and it reflects this concern but, apparently, banks are in a much better situation than in 2007. Their core capital ratios have been increased and their trading activities have been regulated under the control of multiple local or international institutions, which have increased the level of prudential norms and coordinate their action to supervise them.

The general anxiety feeling results, in first place, from the uncertainty affecting world economy. Even though environment is more favorable than ever, with pro-growth monetary policies, low interest rates and a fall in fossil energies prices thanks to major innovations everybody should be happy with, developed countries growth suffers and has difficulties to reach an acceptable level, especially in Europe. And when growth is back, as in the U.S., its persistence is in question. It is this contradiction which worries and encourages commentators to suppose it exists a hidden vice, as in 2007 and to be afraid by the eventuality of a new crisis.

First, there is the Chinese issue. The level of its currencies reserves had reached during 2015 summer, an unhealthy level. Its reduction is not a bad news. Authorities were complaining against a situation which forced them, due to the China current account surplus, to accept dollars and even euros to finance the deficits of their partners. It is the reason why, in 2009, Beijing had initiated its strategy in favor of the internationalization of the Yuan, in order to obtain for it, from the IMF, a reserve currency status. It is done since the end of last year. There were bumps since a transition period was needed. Chinese leaders did not have a lot of experience regarding financial markets reactions, which provoked some blunders. People Bank of China governor, Zhou Xiaochuan, has recognized it. Market professionals were not familiar with such a systemic change. Here too, it will change. Regarding China growth, it is decelerating along with the increase of the size of the economy and its diversification. But market opportunities for foreign companies will still grow. Regarding private and public debt level, it is largely covered by local savings and there is no need for foreign capitals. China will not be at the origin of a world economic crisis.

It is the same for emerging economies, even if Brazil didn’t success in adapting its economy to globalization. The country relied on the exploitation of its oil wealth but the fall of the prices will make it very difficult. Political crisis to which it is confronted will provoke other sources of instability and difficulties, once Olympic Games festivities are over. But the country, as the other emerging economies, cannot, by itself, destabilize the world economy.

The quasi-stagnation which affects Japan and most of European countries, which results from their demographic decline and, in Europe, from the denial of its consequences on public finances, is not worrying for their financial stability, even if German and Italian banks present some flaws. It is essentially a disaster for the millions of registered unemployed workers or disguised ones through 0 hour contracts (England) or mini-jobs (Germany). But that doesn’t put in danger the solvability of their financial systems which rely on an overabundant saving, consequence of an ageing population and people anxiety about their job. The hidden vice of the world economy is not there.

It could be, in return, located in the generous credits given to the energy sector in the U.S. and in emerging economies and in the excessive passion of some banks, like Deustche Bank, for derived products in a context of high market volatility. The fall of oil and natural gas prices has impacted the profitability of many operators. But, in contrary to what was expected last year, production has not declined. Its growth has just slowed. The opportunity offered to American producers to export their production has contributed to this phenomenon. In the same time, investment programs of major companies were postponed in order not to accentuate overproduction, oil and natural gas supply being superior to demand.

But a large part of the “shale boom” was financed by loans or by bonds. Major oil companies, due to their margins, used less these borrowed resources than newcomers on the American market or emerging countries companies. Petrobras debt has reached, for instance, 100billions dollars. Southeast Asia producers, in Malaysia or in Indonesia are also highly leveraged. In the U.S., shale producers gave to banks, as collateral, their reserves, evaluated at the price determined by the market at that time. With the price fall, the value of the collateral has also fallen. It is exactly what happened with the subprimes. Loans had been accorded to borrowers whose financial situation was inferior to usual criteria and in taking as collateral the real estate asset. When its value fell, borrowers insolvability spread like wildfire. The banks, which had offered the loans, in the mean time, had resold them to other financial institutions all around the world, thanks to securitization, with the benevolence of rating agencies. It was this brutal depreciation and its transmission through securitization which was at the origin of the 2007 crisis.

Huge amounts of  bonds and loans are backed by assets which have lost a large part of their value or consented to companies or issued by these companies which profitability have been affected by fossil energies prices fall and which are not sure to be able to reimburse them. This will put pressure on the American banking system and on the resources of some emerging countries. Are these unavoidable problems going to spread, as in 2007, to the other banking systems and provoke the next crisis everybody is afraid about? It will depend on their exposure to these default risks. Until now, very few detailed information has been published by Europeans banks. We just know that Deutsche bank exposure to derivatives, which are frequently linked to raw materials markets, compared to its market value, is very important. This information was at the origin of the fall of its shares on the market, which dragged the European banking sector down.

We just have to hope that Europeans regulators, which are usually very aware when loans or capital are offered to local businesses, have the same vigilance regarding these new risks. If it is not the case, history will repeat itself.