Bank collapse in the US and crisis at Credit Suisse could spread around the world?
Silicon Valley Bank account holders lined up to withdraw cash
Three crises involving large banks in just over a week shook markets and raised a red light among monetary authorities across the planet.
Although crises are localized — problems with balance sheets and mass withdrawals by account holders — any crisis in one bank has the potential to contaminate all other financial institutions in the country or even abroad.
This happens because banks lend money to each other - so the failure of one institution can create financial problems for others.
Analysts point out that when a sense of fear spreads among account holders at different banks, there could be a mass rush by customers to withdraw their deposits — something that would lead to a broader crash in the sector, with consequences for all economies.
This week, in the face of news about the problems in the banks, US President Joe Biden announced measures to reassure Americans concerned about the banking system. In the ad, he said, "Your deposits will be there when you need them."
three problems
The first problem happened last week, in the United States, with the collapse of the Silicon Valley Bank, the 16th largest creditor in the country. Two days later, authorities announced an intervention at the Signature Bank of New York.
This week it was the turn of the Swiss giant Credit Suisse, whose shares fell 24% on Wednesday (15/3), after the Bank claimed to have found "weaknesses" in its financial reports.
Fears of a broader banking crisis sent stock markets slumping around the world on Wednesday.
The US and Swiss monetary authorities reacted quickly so that the institutions' localized problem did not become a general crisis — with runs on several banks in several countries.
Credit Suisse will borrow up to 50 billion Swiss francs ($54 billion or R$285 billion) from the country's central bank to bolster its finances.
Switzerland's central bank has said Credit Suisse has enough cash to stay afloat and has warned it is ready to intervene if necessary.
The US central bank was forced to intervene to prevent a run on bank deposits as panic spread.
This Thursday (16/03), in view of the announcements by central banks, world markets showed recovery.
'Too big to break'
Economist Nouriel Roubini — who became famous for alerting the world to the financial crisis in 2008, which began with the collapse of the American bank Lehman Brothers — told the BBC that the possible failure of a bank like Credit Suisse would have serious consequences for the economy. global.
The bank is considered by many to be "too big to fail"—a term used for financial institutions whose failures could threaten the global economy.
"Silicon Valley Bank was only a $200 billion asset bank and had ripple effects on global financial markets, whereas Credit Suisse is a $700 billion asset bank, so a collapse of Credit Suisse would have a very more systemic and contagious in the economy and financial markets," Roubini told the BBC.
Nouriel Roubini says Credit Suisse crash would be a 'Lehman moment' in the world
"The bank's cash reserves may be strong, but last year they lost around 100 billion Swiss francs ($107 billion) in deposits," Robini said.
“Anytime a bank loses deposits — and it can happen overnight — it can collapse because it's running out of cash, so it has to sell liquid assets, which causes it to fail. That's what happened to Silicon Valley. Bank. This could even happen in the case of Credit Suisse. I would say it would be another 'Lehman moment' in the world, because this bank is huge, it is global and this would have systemic effects."
Larry Fink, the founder of the world's largest asset manager, Blackrock, said it's possible we could see a "slow crunch" that could drag hundreds of small banks into bankruptcy, like the savings and loan crisis of the 1980s, when more than a thousand small banks failed in the US.
concerned authorities
Credit Suisse's financial problems were not limited to the Swiss monetary authorities.
A former deputy governor of the Bank of England told the BBC that central banks in Switzerland and the US are signaling to markets around the world that these problems will be contained locally before they can spread across the world.
John Gieve said that, in the case of Credit Suisse, that would likely be enough to prevent the bank's crisis from spreading to other sectors and countries.
"What we've seen overnight is the Swiss central bank saying 'let's not let this turn into a chaotic meltdown'," Gieve told the BBC.
"I don't know what the future holds for Credit Suisse but so far they are still alive and it looks like the Swiss central bank will ensure they are alive long enough to reorganize their business for the future."
'Material weaknesses'
Credit Suisse, founded in 1856, has faced a series of scandals in recent years, including allegations of money laundering, allegations of espionage and calls for resignation from top brass.
The bank made a loss in 2021 and 2022, and warned its shareholders that it did not expect to return to profit until next year.
The bank's disclosure on Tuesday (14/3) about "material weakness" in its balance sheets renewed investor concerns.
Daniel Davies, managing director of Frontline Analysts and a former banking analyst at Credit Suisse, said the bank's "millionaire and billionaire client base appears to have reached the end of their tolerance and they have been withdrawing money from the bank for the last six months in an ever-increasing pace".
According to the analyst, the situation at Credit Suisse is worrying enough to make the Bank of England carry out surveys with the Swiss Central Bank on the perspectives of the crisis in the bank.
Swiss bank lost in 2021 and 2022
"Because the nature of these crises is that when you have a mass run for loot, it works like a tsunami — there's nothing people can do to stop it. The only thing you can do is stop it before it happens. turns into a run on the banks and the only people who can do that are the central bankers."
Tensions rose further after Credit Suisse's biggest shareholder, Saudi National Bank, said it would not buy more shares in the Swiss bank for regulatory reasons. The prime ministers of Spain and France have spoken out in an attempt to allay fears.
The Silicon Valley Bank collapse also stoked concerns about the value of bonds held by banks, as rising interest rates made those bonds less valuable.
Silicon Valley Bank specialized in lending to technology companies. It was shut down by US regulators who seized its assets on Friday. That was the biggest failure of a US bank since the 2008 financial crisis.
The bank was trying to raise cash to cover a loss on the sale of assets hit by higher US interest rates.
News of the problems led to a rush by customers to withdraw funds, creating a cash flow crunch.
On Sunday, US authorities also took control of Signature Bank in New York, which had many clients involved with cryptocurrencies and was seen as the institution vulnerable to this type of mass withdrawals.
And now?
Analysts are divided on what impact this week's banking woes will have on the entire global economy — even if there isn't a bank run.
The global economy is going through a difficult time — with large price increases in different parts of the planet (such as the US, Europe and Brazil). Since last year, monetary authorities have been responding to this crisis by raising basic interest rates.
Higher interest rates usually cause inflation to fall. But high rates can also have adverse effects on the economy by raising investment and borrowing costs—with the potential to generate unemployment and recession.
Some economies, like the UK, could even slip into recession this year.
Economists around the world and also in Brazil are debating when the recent cycle of high interest rates should come to an end - and when the interest rate cut movement will begin.
The boom cycle brought down stock markets around the world and affected several economic sectors — especially technology, where there were massive layoffs in many companies.
Some analysts believe that the turbulence of banks this week will cause the US Central Bank to interrupt the cycle of high interest rates, to give a certain "relief" to the global economy at this time of stress.
"In light of the stress in the banking system, we no longer expect the FOMC [US Federal Reserve Board] to decide to raise interest rates at its next meeting," Goldman Sachs said in a note.
The next meeting of the US monetary authorities on interest rates will take place on Wednesday of next week. On the same day, Brazilian authorities will also meet to decide on the Selic, the basic interest rate for the Brazilian economy.
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