“Too big to fail is the expression that goes beyond because we deduce that the banks can afford anything”

“Too big to fail is the expression that goes beyond because we deduce that the banks can afford anything”

VSt’s time to take stock: 2023 will have been a great year for bank failures. The European Central Bank even threw a chill, at the end of 2023, by demanding more capital from several banks. They serve as a cushion in the event of an impact. The Swiss regulator, the Swiss Federal Financial Market Supervisory Authority (Finma), for its part, has just published its analysis of the fall of Credit Suisse : he had seen it coming, alerted, but said he lacked the power to avoid it and took a sidetrack to resolve the crisis.

The three regional U.S. banks that fell experienced a similarly rocky rescue. In short, none of the rescue mechanisms carefully prepared after the 2008 crisis were finally applied. In the crazy days of March 2023, two flaws were brought to light: the incredible speed of withdrawals, exacerbated by the lack of guarantee for bank deposits beyond the ceiling… which ultimately were guaranteed, without this really saves the banks.

When Silicon Valley Bank (SVB) announced on March 9 that it had sold government bonds at a loss to cover the withdrawals of money from its clients, the latter, Silicon Valley entrepreneurs, became frightened and emptied their accounts (to pay salaries). Closing the bank became the only option: without it, SVB would have lost an additional 100 billion dollars after the 40 billion the day before. It was the same scenario for the Première République bank, focused on hyper-rich clients, a community that listens to each other.

Authorities guarantee deposits

The fear spread to all the regional banks, which had no problems and eventually all this money started to converge on the bigger banks. too big to fail” (too big to fail). To stop the headlong rush, the authorities guaranteed all deposits, whatever the cost. We created, on the smoking ruins of bankrupt banks, bridge banks in the hands of the authorities with unlimited access to liquidity to ensure continuity (previously, a customer of a bankrupt bank could wait months to recover their money) .

Even the bridge banks, which took over the commitments of the closed banks, had difficulty returning to the interbank market. However, the authorities appointed leaders of great reputation there. These general managers kept key personnel until they found a buyer (this was particularly the case for SVB and First Republic).

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Mattie B. Jiménez

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