‘stimulus packages will help, but won't solve the problem’

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: The ongoing global financial crisis, having its origin in the US subprime crisis, has rapidly expanded into other broader areas of the economy as well as geographical areas.

Though the policy makers, including central bankers, have resorted to increasingly bigger stimulus packages, the crisis continues to remain out of control and uncertain. But the question that remains is will this be enough to see the global economy cross over? And what are the consequences the global banking sector will still have to face?

David Wyss, chief economist, Standard & Poor’s, in an exclusive interview with FE’s Sitanshu Swain, puts forward his assessment of the financial crisis. Excerpts

After a long strife concerted action is being taken across the globe to control the tremors let out by the global financial crisis. In this light, how do you see the state of the crisis now and the reasons for its persistence? Also, do you see the tremors still spreading?

Although there are some signs that the crisis is easing, it remains severe. The problem is lack of trust, which will take time to rebuild. Underlying this was a period of excessively easy world credit and a disregard of risk. Lenders are now overreacting in the opposite way.

How do you see its impact on the banking and financial sector of emerging countries, including India?

India is less affected than most other countries, since banks trend to be domestic. But they certainly will not escape injury.

Prior to the crisis breaking out, the strategy used by banks was to spread operations aggressively. Now, do you think US and European banks and financial institutions will be handicapped in their expansion plans in other countries and would focus more on local markets?

Banks aren't interested in expanding anywhere for the duration of the crisis. They are focussed on home markets.

Do you think the various stimulus packages announced by the governments in developed countries are effective? Or do you expect more packages to be announced by the US and European countries?

The stimulus packages will help, but won't solve the problem. The underlying problem remains the financial system.

How long do you think the global recession will continue?