Are we rapidly heading towards GFC V.2?

[onetrack]

All the signs are there, that we're rapidly heading to a GFC V.2 - what with the rapid collapse of Silicon Valley Bank, followed by the collapse of New Yorks Signature Bank - and now Credit Suisse looking very much like following the other two. There is talk already of Credit Suisse needing a major bailout. That is going to have to be financed eventually, by everyone who does any kind of banking.

 

I believe there's possibly a lot of further information to come, on what is behind these collapses - but the old bogey of "easy money", guaranteed by the printing of vast sums of money with no asset backing,  must be a big factor in these bank collapses.

Of course, the worlds whizz kid, Donald Trump, also played his part by ensuring that thousands of mid-tier regional US banks did not have to comply with the cash reserve rules set up for Americas biggest banks after the GFC.

 

https://www.abc.net.au/news/2023-03-16/global-banking-crisis-deepens-fall-of-silicon-valley-bank/102105284

 

 

Edited March 16, 2023 by onetrack

[Jerry_Atrick]

I think it is a case of watch this space. I would be surprised if the US national banks are in any real sorry situation. SVB is a regional, and guess who relaxed the requirement for regional bankls to comply with the new pridential requirements and regulations set up after GFC? Trump.

 

The issue with SVB is that for a while they had too much money in their deposits compareed to lending, and that they decided to hold it as US Treasuries. The problem was, as the interest rates went up, the value of the USTs dropped as investors could get new USTs paying higher rates of interest. Coinciding with this, a lot of tech coimpanies hit slow downs, and needed to access their deposits or lines of credit. Suddenly there was a net cash outflows and SVB had to sell their USTs to cover their cash withdrawals. As they added to supply of trhe lower interest rate USTs their prices dropped further. They did not have hedges for their positions as they did not need them any more. All the national banks and SIFIs (Systematically Important Finanical Institutions) have to hedge their bond book by law, and they have to back test their risk management to ensure the bond book (covering deposits) is adequtely hedged.

 

Credit Suisse is a different animal altogether, and has had problems for a long time, mainly around its investment banking unit. Greensills Capital took a large chunk of capital from them and they have had similar sized bungles. They are, IMHO, a poorly run bank that is struggling with a reputational issue and clients have been deserting them big time over a period. Having said that, I think the 50bn or whatever it is liquidity line from the Swiss central bank is to stem the share price devaluation as a banks tier 1 capital (which is the value that can absorb losses) gets eaten up very quickly with those sorts of devaluations. There are concerns about its long term viability, but not from a financial systemic viewpoint.

 

We have seen credit spreads on some regional banks widen materially, and Credit Suisse's credit spreads have been wide-ish for some time.. But apart form that, there has been some collective impact, but so far, nothing too serious.. So, uinless there is something the markets don't know yet, it's a contagion wobble, but I wouldn't put my money under the mattress just yet.

[Jerry_Atrick]

This is one of my favourite financial services commentator. I think he is a professor in finance at Kings College, London, and he does have a wry sense of humour. It goes into more detail than I do (but he is paid to research the mechanics of the market, I am not): 

 

 

[old man emu]

It would appear that the Gnomes of Zurich have been playing Monopoly with our real money for too long. For too long they have acted as the fences for the financial misdeeds of criminals, dictators and corporations. The moment Credit Suisse takes the "Go to Jail" card from the "Chance" pile, the Common Man will be doing the years at hard labour.

[onetrack]

I don't know how many times, after a bank has got into serious trouble, I've seen a general conclusion by the nodding wiser heads, that there was a "failure of risk management" involved.

 

Yet these bank head honchos drag in eye-watering salaries (at our expense), whilst constantly soothing the masses with claims that the bank is in good hands.

 

It draws one to the conclusion that a vast amount of banking today, simply involves high risk gambling with other peoples money. That's pretty easy to do when there's inadequate controls in place.

[spacesailor]

M bank payed $  53 Million pa. Plus bonuses.

Then the undisclosed  '' golden handshake '' , it is ' sickening '.

The shareholders are being ripped off & Not getting their fair share .

That will promote a G F C , as the  masses move their pittance o better return's .

spacesailor