Most of us naturally worry about how these outcomes will eventually affect mortgage interest rates and the cost of living. Yet there is a quieter, but no less interesting, story to be told about the wholesale side of banking.
- Commodity price volatility affects banking via channels that are strong, but often unclear.
- One of the most direct and serious is the tendency of volatility to magnify the risk on derivatives into which the banks enter when financing profitable business in the real economy.
- With the economy as dependent on the resource sector as it currently is, any risks to growth from rising financial risks in resources may be very real.