Banks: Credit Suisse, SVB suffer coincidence crisis



A version of this story appeared in CNN’s What Matters newsletter.To get it in your inbox, sign up for free here.



CNN

if you go to bed thinking about bank problem in their Way to go, waking up to the news that another bank – Europe-based Credit Suisse – is faltering, and it’s natural to worry.

Even White House officials and U.S. economists breathed a sigh of relief Tuesday night ET. By Wednesday morning, it felt like things had changed.

Unlike U.S. regional institutions such as the failed Silicon Valley Bank and Signature Bank, Credit Suisse is one of the largest banks in Europe and world.

The details of Credit Suisse’s problems are as clear as those of SVB, but the fact remains that a European bank is in trouble after the US The Federal Reserve took decisive action to maintain confidence in the US banking system. Both U.S. stocks and European markets are reacting to the anxiety.

Watch a CNN special “Bankruptcy: What’s Next for U.S. Currency” 9 p.m. ET Wednesday.

Get the latest information from CNN.

CNN’s Alison Morrow Write Coincidence is part of the connection.

“They had unrelated issues that just happened to happen at the same time, making investors worried about the banking sector,” said Morrow, noting that Credit Suisse had faced problems for years. She pointed to an investment analyst who wrote that problems at Credit Suisse had been drawn into the SVB “vortex.”

“Did SVB’s turmoil send Credit Suisse’s share price slump? No,” Morrow wrote. “But are banks in Europe and the US facing a similar macro environment, with interest rates suddenly rising after a decade or more of low (or even negative) rates? Yes.”

It’s also not entirely clear that U.S. regional banks, while generally considered healthy, are out of the woods. Moody’s downgraded the credit ratings of six such banks on Tuesday as customers withdrew deposits and deposited them with larger banks.

as CNN’s David Goldman noted: “The first bank runs of the smartphone age were fueled by viral social media posts, text chains and instant access to banking apps, fueling widespread attention and rapid customer withdrawal.”

This is what happened to SVB, according to a useful flowchart via CNN Ramishah Maruf and Tiffany Baker, which explains why the venture capital firms that represent much of SVB’s business began divesting last week.

The federal government—including policymakers at the Federal Reserve and the White House—moved quickly to ensure SVB and Signature will have access to funds to cover withdrawals.This is to ensure Bank customers could get their money, but, they argued, there was no bailout of the bank.

To rescue or not to rescue? This is more a political term than a technical term. Government guarantees for uninsured deposits clearly have some relief, even if they certainly cost creditors and shareholders alike.

CNN’s Nathaniel Meyersohn examines the term — “Bailout” — and how it became a dirty word. He noted that in addition to insuring failed banks’ previously uninsured deposits, the Fed created a new facility that essentially provides discounted loans to banks to cover deposits as their investments adjust to higher interest rates. Its purpose is to prevent contagion.

Far from a bailout, the DOJ and SEC are working on launch an investigation Enter SVB collapsed. They could target SVB executives who sold millions of dollars in stock in the weeks leading up to the bank’s collapse.

Sen. Chris Van Hollen, D-Md., a member of the banking committee, said the U.S. should recoup some of the stock sales of executives. “Those who profited on the eve of the crash need to chip in to help cover the overall costs,” he told CNN’s Kate Boldouin.

Progressives such as Vermont Sen. Bernie Sanders argue that Congress and then-President Donald Trump’s 2018 decision to roll back Great Recession-era Wall Street reforms helped keep the SVB problem undiscovered. Several senators have proposed restoring those rules.

CNN’s Daniel Dale fact check these claims, which has some advantages. Essentially, the 2018 changes allow banks with assets below $250 billion to largely avoid the annual stress test. Banks argue that the stress tests are onerous.

Dell noted that SVB’s chief executive had pushed for deregulation because banks like his posed no “systemic” risk to the system. Dell, however, spoke to experts who oppose deregulation but still say the stress test may not detect the risk that SVB is exposed to rising interest rates.

Perhaps a bigger problem, one expert told Dell, is the Fed’s relatively loose approach to banks.

Unlike SVB and Signature, Credit Suisse is a large international bank. It’s also beset by long-standing problems.

The latest crisis — with shares tumbling to an all-time low on Wednesday — came about because the National Bank of Saudi Arabia refused to take a bigger stake in the mismanaged lender for various reasons. Credit Suisse announced a massive restructuring in October. Read more about the Credit Suisse issue.

Meanwhile, in the U.S., the Federal Reserve Board, which is in charge of adjusting interest rates, meets next week for two days and faces major scrutiny.

Inflation has cooled for eight straight months, retreating from record highs, but remains well above the Fed’s normal 2 percent target.With this news, Americans Less money spent in February And the pullback was sharper than economists expected, which could signal a bigger slowdown.

“The question is how will the Fed deal with these three main stories? We have a situation where people are spending less, inflation is cooling, but all of that is putting pressure on the banking system,” CNN’s Matt Egan said.

One tool the Fed uses to cool inflation and the economy is to raise interest rates.

Thomas Hoenig, former president of the Kansas City Federal Reserve Bank and former vice chair of the FDIC, speaks to CNN’s Julia Chatterley ahead of the Credit Suisse news Tuesday. ) said the Fed should keep raising interest rates to more completely cure the economic crisis. Inflation problem. look at it.

“They should raise rates because their number one problem right now is inflation and they’ve dealt with this looming crisis,” he said, referring to the banks. He thinks that if we don’t continue to raise interest rates, we may see the runaway inflation of the 1970s.

“More than a decade of zero interest rates has created this problem,” Hoenig argued. “They’ve got to get through it, they’ve got to stay the course and bring down the inflation situation, or it’s only going to get worse.”

Credit Suisse is not in the euro zone, but it has operations there, and European regulators, facing the same conundrum as Fed Chairman Jerome Powell, are still expected to hike rates further on Thursday to fight inflation.



Source link

Leave a Comment