Financial crisis is a big word – and one should be careful not to label the shocks that the markets are currently experiencing as such. Hardly any crisis had more serious consequences for the global economy than the bankruptcy of the US investment bank Lehman Brothers. Hardly any other crisis has so damaged trust in the banking world and in the market economy as a whole.
And yet: the current crisis of confidence is unleashing a force that hardly anyone would have thought possible two weeks ago.
Again hectic, globally coordinated central bank actions on a Sunday evening before the stock exchanges open in Asia to secure the dollar liquidity of the banks – so that the markets don’t collapse. Again a hectically arranged emergency merger secured with state guarantees – between two systemically important big banks.
What is particularly worrying is that Sunday’s crisis management did not particularly impress the financial markets. At least not in the way the central bankers and politicians had imagined. Markets took the actions for what they were: a necessary emergency operation because doing nothing would have made things worse.
The financial markets experienced a veritable bank quake when the stock market opened – even though they recovered later. Things looked different with the CHF 50 billion liquidity aid for Credit Suisse on Wednesday.
So the situation is serious, no matter how many chancellors, finance ministers or central bankers can reassure you that the banking system is safe. This time, the crisis signals are not coming from American special institutions that hardly anyone in Europe knew, the Silicon Valley Bank and Signature Bank.
This time it’s about Credit Suisse, one of the 30 systemically important banks worldwide – so the epicenter is in Switzerland of all places, where it was once the case when it came to banking: It couldn’t be safer.
Credit Suisse made serious mistakes
As with the American banks, it is again: special case! Yes, according to the unanimous opinion of analysts, the top management of Credit Suisse, which is as proud as it is steeped in tradition, made serious mistakes. Incidentally, just like the big sister bank UBS during the financial crisis, which is now being more or less forcibly merged with Credit Suisse.
Back in 2008, it was said that Switzerland was UBS with an attached economy. The proportions are now even more unfavorable with the merged bank, so now UBS is even too big to fail.
>> Read here: According to experts, UBS is buying a gigantic market power at a surprisingly low price
The case teaches us once again: Despite all the oaths taken after the financial crisis, the state is still forced to intervene because it cannot take the risk of bankruptcy. Despite tightened equity guidelines (Basel 3), the regulators apparently have no means of really keeping complex entities like Credit Suisse under control.
The only thing that helps is efficient protection against bankruptcies – and that means first and foremost: even stricter equity capital requirements. Banks are naturally reluctant to do so. They point out that stricter regulations are slowing down economic growth.
That may even be true in part. But even that cannot hide the fact that banks tend to shift risk to creditors and sometimes taxpayers as well. And that it is always the more convenient way for them to expand with as little of their own resources as possible.
>> Read here: Bank stocks initially on a downward slide despite the Credit Suisse rescue
On the other hand, the state has no real interest in banks having to deposit equity for their bonds. The role of the banks as financiers is too important for finance ministers who are willing to spend.
Because this time it’s not toxic subprime securities like in 2008 that are triggering the bank quake. This time it is government bonds, the supposedly most harmless of all harmless securities, that are shaking confidence in the banking world.
The cumulative return of inflation has caused bond prices to collapse – as a result, many banks that have saturated themselves with the paper have taken considerable price risks.
Some economists speak of a time bomb. And it seems like mockery when ECB boss Lagarde now claims that there is no trade-off, i.e. conflicting goals, between financial and price stability. Never has this claim been further from the truth.
More: ECB boss Lagarde is fighting against the loss of confidence