Relatively small regional US banks (Silicon Valley Bank, First Republic Capital etc.-please read also the analysis titled “US Regional Bank Shares Fall: All Eyes on FRC“) are going for closure. In a corresponding manner, the same is done in the small regional European banks. The vehicle for this process in Europe is with Credit Suisse AG. Essentially what is being done in a “violent” way is the merger of the banking industry on both sides of the Atlantic. The goal is to leave only a few dozen strong banks on both sides of the Atlantic with a strong capital base that can compete on a global level with the Chinese banks that have the support of the Chinese state.
This forced merger of the banking industries is achieved because money becomes expensive with the policy of increased interest rates. Essentially, the markets are running dry of money, so the result is the bankruptcy of some banks and companies and in the near future recession in the economy.
What will happen to the global banking system and capital markets now depends solely on how quickly and decisively the European Central Bank will move to rescue, in conjunction with the Swiss Central Bank, the collapsing Credit Suisse.
The Swiss National Bank (Swiss Central Bank) has announced that it will provide liquidity to Credit Suisse and this is certainly a very positive first signal. It remains to be seen whether it will be enough to reassure the markets.
Europe’s Central Bank governors are meeting today Thursday to decide on the ECB’s response to the issue.
The only positive is that everyone remembers the bankruptcy of Leehman Brothers Inc. in 2008 which was undoubtedly a big lesson for the global economy. The lesson was not to let the big banks fail.
Credit Suisse unlike the three American banks that collapsed is no laughing matter. It is a global bank that interfaces with all the others and also with businesses, with markets, with national economies. It is too big to be left to its own devices and that means there will probably be an early reaction.
The information indicates that there will be no immediate announcement of measures from the ECB, but perhaps some moderate statement of support.
What they are mainly concerned about is that the intervention should include, on the one hand, the provision of large amounts of liquidity to support the system and, on the other hand, a halt to the upward trend in interest rates. Both of these measures contradict the anti-inflationary policy pursued by the ECB by raising interest rates.
Europe’s central bankers are divided between “doves” (Northern Europe) and “doves” (Southern Europe) on the pace of interest rate increases. The “pigeons” want the rate of growth to slow down or even stop it, but of course the prevailing “jerks” do not easily change their minds.
Central bankers believe that there is no risk of a Bank Run, that is, the case of panicked depositors running to withdraw their money from banks – money that cannot physically exist in cash. This would lead to the collapse of the banking system and all economies.