This is what’s behind the Swiss banking earthquake

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It’s a pitch black Monday on the Swiss stock market. Credit Suisse shares fell shortly after trading began. Investors panicked – Swiss exchange SIX temporarily suspended trading of CS securities at minus 10 percent.

All are useless. As trading continues, CS stock continues to decline. Meanwhile, Switzerland’s second largest bank is in the red with 14 percent. A share in Credit Suisse costs just CHF 2.16 – an all-time low. UBS shares (down 6 percent) and all other major European banks also fell on Monday morning.

What’s behind the bank earthquake? Answers to the most pressing questions:

The cause of the accident that occurred on Monday morning is in the USA. Silicon Valley Bank (SVB) and Signature Bank filed for bankruptcy here last week. The SVB bankruptcy is the second largest bank failure in American history.

Too little liquidity. The US money house specializing in startup finance has run out of money. The urgent capital increase failed at the last moment. Therefore, the bank had to be temporarily closed and placed under state control. This was announced by the US deposit insurance company, the FDIC, on Friday. “The developments around the SVB have provoked panic reactions. The fact that investors pulled their deposits in this panic exacerbated the crisis,” says banking expert Andreas Dietrich of Blick at the Lucerne University of Applied Sciences and Arts.

U.S. officials tried everything over the weekend to calm the stock markets before the week started. Comprehensive steps to protect deposits in banks were announced on Sunday. The Federal Reserve, the Department of the Treasury and the Federal Deposit Insurance Fund FDIC announced on Sunday that SVB depositors will have access to “all their money” from Monday. The taxpayer will not have to pay for it. Access to all deposits at Signature Bank of New York will also be available.

Dietrich describes the backlash as “a strong but indeed controversial sign from the government” that the deposit guarantee system has de facto broken down and that all deposits will be secured. This is not in line with the idea of ​​a deposit guarantee system. “At the same time, the U.S. Federal Reserve probably had to make this decision to prevent a fire and prevent even greater panic.” Dietrich therefore considers the measures taken to be correct.

The tranquilizer pill from the USA did not help. Forest fire scare is great. And memories of the 2008 financial crisis probably came to some investors’ minds. The financial market supervisory authority Finma will be monitoring the situation closely. “In general, I would take the whole situation as a red flag. In this country, so you don’t need to panic,” says Andreas Dietrich. Notable: Credit Suisse shares had to be briefly suspended Monday morning.

If a stock such as CS’ stock suddenly drops more than 1.5 percent below the last traded price several times in the morning, that stock’s trading is suspended for 5 minutes. The goal is to prevent the so-called flash crash. This means that the value of the shares will fall into the abyss. In these 5 minutes, market participants again have time to agree on a realistic price.

The SVB’s problems stem from mis-assessment of bond developments and short-term liquidity problems. Corresponding bonds depreciated as a result of interest rate hikes. “Everything went public mainly because they had to sell it at a loss and then it was a chain reaction,” says banking expert Dietrich. He doesn’t think Swiss banks have the same problems. “At least not to the same extent,” Dietrich says. “However, I wouldn’t be surprised if other banks around the world had major problems with bonds in their portfolios when interest rates were rising.

This is still unclear. Some economists even expect recent events to cause the Fed to halt its monetary tightening cycle next week. So no more rate hikes. It’s as a sedative pill for exchanges and banks.

Source :Blick