The financial panic detonated by Silicon Valley Bank and Credit Suisse, from the Fed to the Swiss central bank, are using the method of digging meat to fill holes to transfuse financial institutions.

(Schematic, Reuters)

The financial panic detonated by Silicon Valley Bank and Credit Suisse, from the Fed to the Swiss central bank, are using the method of digging meat to fill holes to transfuse financial institutions. However, which financial institutions and what kind of financial institutions in other countries will explode, really Unpredictable!

Since the collapse of Silicon Valley Bank (SVB) on March 10, panic has spread -- global investors are anxiously asking whether the next "Lehman moment" will appear again. Unexpectedly, Credit Suisse Bank (Credit Suisse) also broke the financial crisis, "The Swiss government took action to rescue Credit Suisse, but can the panic in the global financial market stop the bleeding?" UBS) announced on March 19 that they agreed to acquire Credit Suisse for US$3.26 billion, and bear Credit Suisse’s investment loss of US$5.4 billion ── Credit Suisse plays an important role in the stability of the global financial system. Severe financial volatility affecting the world, provided a loss guarantee of US$9.6 billion and US$108 billion in liquidity support to UBS.

However, is the completion of the acquisition enough to appease the strong unease in the market?

Please read on...

Wouldn't the run happen without social media?

These two major events can be said to have shocked the global financial and technology circles. First, the news of the collapse of Silicon Valley Bank in the United States on March 10. Some people believe that one of the reasons for the collapse of Silicon Valley Bank is precisely because depositors posted on social media. The exchange of information on platforms such as emails and emails caused a large number of investors to withdraw their deposits in a rush due to panic and herd mentality, which eventually led to a run on Silicon Valley Bank and affected the entire banking industry.

Wouldn't the run happen without social media?

"Without social media, the bank run in Silicon Valley probably wouldn't have happened." Kali Hays, a technology reporter for Business Insider, a well-known business news website in the United States, thinks so.

What makes the Silicon Valley bank's collapse unique is how quickly and without warning it happened.

Before March 8, Silicon Valley Bank was originally a large bank with total assets of about 200 billion US dollars and a good "A grade" credit rating; In the end, it could only sadly declare bankruptcy.

In order to avoid further contagion of risks, the Federal Reserve (Fed) allocated $25 billion in funds through the "Bank Term Financing Program" (BTFP) to provide additional funds to banks to ensure that they have the ability to meet the needs of depositors. However, overdeveloped Social media makes information flow extremely fast, causing users to discuss wildly on various platforms, and panic continues to spread, making the run on more intense.

Competent authorities should face up to liquidity Li Changgeng suggested setting up a "circuit breaker mechanism"

Silicon Valley Bank of the United States collapsed within 48 hours, and Cathay Gold General Manager Li Changgeng mentioned that Silicon Valley Bank was withdrawn NT$1.28 trillion within 48 hours, which happened to any bank in Taiwan. Especially with the advent of the digital age , everyone no longer needs to queue up to run, and you can withdraw with a swipe of your finger. He called on the competent authorities to face up to the issue of liquidity and discuss whether to set up a "circuit breaker mechanism" compared with the stock market.

Li Changgeng further said that CDB's net liquidity ratio of 138% is very high, but with the development of digitalization and the rapid spread of online and social media, under various rumors, once it faces a liquidity crisis, the run will be even more powerful.

Another major event was the financial crisis of Credit Suisse, one of the 30 "systemically important" banks listed by the Financial Stability Board in Switzerland, whose economy is highly dependent on the financial industry. , the total assets held by Credit Suisse and UBS are as high as 140% of Switzerland's domestic GDP. Whether it is for Switzerland or the global financial industry, Credit Suisse can be said to be "too big to fail".

However, Credit Suisse itself has been plagued by various scandals for many years, including money laundering, regulatory issues and poor investment decisions. President Tan Tianzhong resigned after two high-level commercial espionage scandals broke out at Credit Suisse; in 2021, Credit Suisse lost US$5.5 billion due to the collapse of the US hedge fund Archegos Capital; in 2022, Credit Suisse was exposed by the media and a large number of fraudsters , corrupt politicians and financial crime clients, the funds deposited in Credit Suisse reached 97.4 billion U.S. dollars, the image of Credit Suisse further deteriorated, and the investment failure also caused Credit Suisse to report a financial crisis.

Starting in 2022, bank customers began to withdraw a large amount of money from Credit Suisse, causing Credit Suisse to experience the worst annual loss since the 2008 financial tsunami, reaching 7.29 billion Swiss francs, until March 14, 2023 Credit Suisse announced the delay Several days of annual reports revealed that there were "major flaws" in the financial reports for 2021 and 2022. As soon as the news came out, the stock price plummeted, dragging down European bank stocks and major US banks such as Goldman Sachs, Citigroup, JPMorgan Chase, Morgan Stanley, etc. .

After the financial crisis broke out at Credit Suisse Bank, although the Swiss government coordinated UBS Group's acquisition of Credit Suisse for US$3.26 billion, the AT1 bonds issued by Credit Suisse worth US$17 billion will be canceled to reduce bank debt, which means that investors Credit Suisse AT1 bonds will be worthless and "turn into wallpaper", which makes some investors deeply dissatisfied. If some investors in Taiwan buy Credit Suisse AT1 in the bank's financial management department, they will cry without tears.

The occurrence of two major events has made global investors very worried, but at present, we can see that from the Federal Reserve to the Swiss National Bank, they are using the method of digging meat to fill holes to inject blood into financial institutions to temporarily stabilize the financial market. I hope that there will be no more problems and continuation effect.

However, it is really unpredictable which financial institutions and what kind of financial institutions in other countries will explode!

(This article is excerpted from the "Taiwan Banker" monthly magazine in April 2023, written by Zhang Jialing)

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