Point of view: The banking crisis is far from over, and the banking crisis is gaining momentum, even though superficial media reports in Europe may seem like the worst is behind us. This impression is given by the fact that the Swiss giant Credit Swiss Group announced that after the main owner, the National Bank of Saudi Arabia, gave up his hand, the bank was promised capital support by the Swiss Central Bank itself. (By the way, once a commercial bank receives targeted assistance from the Central Bank, this in itself indicates the seriousness of the situation).
So at this point, Credit Swiss has bought some time with CHF50 billion from the Swiss Central Bank. Whether this time will be enough to calm the panic and for Credit Swiss to remain in its current form will not be decided so much in Europe as in America.
In the United States, another bank began to have problems – the fourth in the United States and the fifth in total, if we include the Euro-Swiss Credit. Next up is First Republic Bank, a mid-sized US bank. The bank’s credit rating was downgraded due to concerns that it might be disqualified for the same reasons that led to the suspension of Silicon Valley Bank a few days earlier. Shares of the bank tumbled 30 percent after the rating downgrade Thursday morning US time. The same fall in stock prices foreshadowed problems for Silicon Valley Bank and Credit Suisse. So far, the bank has not failed. However, he is facing a bank run and that in itself is a huge risk factor.
If another US bank fails, the banking contagion cannot be stopped. And at such a moment, even Credit Swiss will probably not spare anything in the sense that the bank will have to change its format. Make no mistake – Credit Swiss is the second largest Swiss bank, the so-called primary Swiss bank. but this is not all! Credit Suisse is the backbone of its size, even from the point of view of the whole world! And that puts us in a completely different league. At the same time, this means that the bank will not fail in the sense that there will be a loss of deposits. But what can happen is that it can “fall out” in the sense that it will be taken over by a competitor. You probably remember the case of the IPB, which was very quickly swallowed up by ČSOB at the time of difficulties. So there could be an analogy here.
Be careful, let us be under no illusion that there is currently any competent person among the politicians in Europe who understands what is going on, much less is able to respond adequately. Politicians are asleep and don’t understand the scale, but even worse are the central bankers. Evidence: The European Central Bank decided to set interest rates on Thursday. And it did the worst possible thing for European banks: it raised interest rates by 50 basis points as part of the “fight against inflation”. At the same time, the previous sharp fall and subsequent increase in interest rates is the main thing that kills banks, because (simply) borrowers lose the ability to repay as interest rates rise. In addition, banks that engage in investment deals record losses from securities deals for the same reason.
And so, the ECB has completely incompetently hammered another nail into the banks’ coffin. She probably has no idea what’s going on. At the same time, I believe that the current situation could be a “bigger event” than the 2008 financial crisis, at least for Europe. For now, I’m talking about potential, not actually happening. Everything depends one hundred percent on the development of a panic situation.
And the panic has already set in, as I can attest. It’s been a long time since we had to put the night shift on our computers to handle a rush of customers and answer their questions, or fulfill their desire to transfer savings into precious metals. If we can judge personally, we have only encountered 3 similar attacks so farx : in 2001 when the twins fell, in 2008 when the financial crisis hit, in 2020 during the first lockdown and then now. At the same time, the wave of prudence affects not only small depositors and companies, but – and this is important – other large banks directly. Three other large banking groups within Europe have already taken steps to separate themselves financially from Credit Swiss. In other words, banks are starting to “find the liquidity inside” in the banking sector. However, this could escalate some banks’ problems as they are a drain on capital.
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