Bearish nerves seem to be winning right now — despite good reasons to hope not
Markets were not exactly calm by the end of the week but they had stabilised somewhat. This came after Credit Suisse made use of a $54bn “bazooka” liquidity intervention by the Swiss National Bank, while the risk of US bank runs was offset by deposit guarantees, new Federal Reserve liquidity facilities and a Wall Street whip-round.
This week’s problems in the US were explicitly caused by a failure there to apply these rules to anything other than the eight biggest banks. SVB was brought to its knees by a combination of poor interest rate risk management and lax regulatory oversight, leaving it vulnerable to a run on deposit withdrawals.
As investors looked for victims in Europe, attention settled on Credit Suisse, long seen as the region’s weakest big bank. There is even less fundamental reason to distrust the viability of European banks more broadly. Credit losses are low, capital levels are strong and they have come through stress tests.
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