Credit Suisse and SVB: finding the best defence for fear and failure

By Dafydd Rees

Making sense of the fast-moving events of the past few days in global finance are bringing memories flooding back. Fifteen years ago, running the Business desk at Sky News, I found myself striving to make sense of the upheaval and uncertainty of the Global Financial Crisis. It feels like only yesterday. 

History doesn’t repeat itself, but it does rhyme. Three US financial lenders have failed in the past week, an uncomfortable marking of the anniversary of the collapse of US investment bank Bear Stearns in March 2008. Over the following four years, more than 450 lenders around the world followed suit.

Here in the UK this morning, the Governor of the Bank of England Andrew Bailey says he is on alert and following events at Credit Suisse closely. Overnight, Switzerland’s second biggest lender which employs thousands of people in the City of London borrowed over £44 billion from the Swiss Central Bank. The CEO of Credit Suisse is promising to create a simpler and more focused institution in the future.  

Spotting the tell -tale signs of an international banking crisis aren’t easy. Regulators have a nasty habit of solving the last crisis rather than identifying what is coming next. Last Autumn’s LDI crisis that hit the UK pensions industry is a case in point.

Switzerland’s second biggest lender has been plagued by multiple scandals in recent years. Yet the reputational and financial problems which meant its share price fell by 30% yesterday are not the same as those of Silicon Valley Bank which collapsed over the weekend.

What comes next? The list of what could be the next contagion risk for the global economy lengthens by the hour. The US commercial property sector and regional banks in Japan are just two examples cited in recent days of where the red light could flash next.  

At a time of fear, reputation is as important as any financial indicator in steadying nerves and preventing the herd mentality of getting a hold on markets. When leaders of financial institutions make fervent protestations that all is secure and stable at their business it’s already too late.

Over the weekend, finance ministers around the world stayed up all night to provide markets with a solution to the problems at Silicon Valley Bank. The statement from the Swiss Central Bank in support of Credit Suisse was issued at 2 am this morning.

No-one can predict the future. But the past has a habit of influencing our behaviour. Trust is a human characteristic, hard to define. But when the fear factor grips markets it is often the last and only line of defence.