Innsbruck (OTS) – It shouldn’t have been possible for a bank to trigger a financial crisis since 2008. The Credit Suisse case raises the question: How secure is a banking system that has to be stabilized overnight with hundreds of billions?
One thing can be said following the emergency rescue of the major Swiss bank Credit Suisse: “Too big to fail” still exists. We remember. After the 2008 financial crisis, banks should never once more be so large and systemically important that they have to be rescued if necessary, otherwise the entire financial system would falter. For example, additional capital requirements were introduced, stricter supervision, and if the worst came to the worst, such an institution should be wound up in an orderly manner. The message: Nobody should have to tremble anymore, even if a big financial institution gets into trouble. We have made provisions.
In the case of Credit Suisse, there can hardly be any talk of an orderly settlement. Calming pills such as a €50 billion credit line from the Swiss central bank were unable to stem the tide. An emergency rescue plan was therefore built over the weekend with sums of money that are beyond imagination. Competitor UBS is being forced to take over Credit Suisse, the Swiss National Bank is providing cash injections equivalent to around EUR 100 billion, and the state is also assuming liability for further loans of up to the equivalent of EUR 100 billion. That the whole plan might also be illegal for a number of reasons – it doesn’t matter, it obviously had to be done quickly.
Any other solution, emphasized the Swiss finance minister, would have triggered a financial crisis, and bankruptcy of the bank would have had unforeseeable consequences for the global financial system. After 2008, that should no longer be the case. But apparently a single bank is still capable of triggering a global crisis. So this is how the security of the financial system is now, 15 years following Lehman.
It therefore sounds quite cynical when central banks step out to emphasize the stability of the system and the resilience of the banking sector. How safe is a system that has to be stabilized overnight with hundreds of billions in financial injections and state guarantees in order not to collapse? Not to be forgotten: After the bankruptcy of the Silicon Valley Bank in California, the USA also had to move out quickly and guarantee all deposits – in fact beyond the existing limit of $250,000.
With the takeover of the “zombie bank” Credit Suisse, UBS is now becoming a “monster bank”, as the Neue Zürcher Zeitung aptly wrote. Woe betide if the “monster” should stagger.
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