Despite the Swiss government-backed takeover of Credit Suisse by competitor UBS, fears of a global banking crisis did not subside last night.
A £2.6bn bailout meant to prevent the collapse of Credit Suisse, spark a “so-called ‘Lehman moment'” and a wider global banking shock, continues to ripple markets around the world.
The deal, which was initially lauded for reducing the risk of systematic bank failures, sent Asian and European stock markets and banking stocks into further losses after it became clear that some of the decisions taken by Swiss regulators were more severe than can lead to problems.
Those worries intensified last night as shares of the troubled American First Republic Bank continued to fall despite a $30 billion infusion by major US banks last week to reassure people that the US banking system is generally safe for deposits. . Shares of San Francisco-based First Republic fell 35 percent yesterday.
JPMorgan Chase CEO Jamie Dimon has resumed talks with other major institutions about another attempt to take over the First Republic. Wall Street Journal reported.
The Credit Suisse deal was sued by disgruntled bank bondholders who suffered a $17 billion loss when a Swiss regulator ruled they would not be compensated to hurt the chances of a successful takeover of Swiss rival UBS.
Experts warned that the decision not to compensate would undermine the $250 billion market in affected bonds, which were originally intended to put the risk of the bank’s collapse after the 2008 financial crisis on investors rather than taxpayers.
The Bank of England and other European regulators were quick to take action to reassure investors about such bonds after fears of further declines in bank shares.
The Credit Suisse deal was also heavily criticized by Swiss politicians. Socialist MP Roger Nordmann warned that the aid package posed a “huge risk”.
“The new UBS also poses another huge risk – it will have more than 1,500 billion Swiss francs in assets, which is too much for Switzerland,” he said.
“What happened is terrible for the authority of Switzerland. This is a warning shot for Switzerland against banks that are too big. I’m very worried about the new UBS.”
The recent bank turmoil was fueled by the collapse of US lenders Silicon Valley Bank and Signature Bank, which quickly left Credit Suisse in the lurch as investors worried about other time bombs in the banking system.
Regulators in the US and Europe insist that the current turmoil is different from the global financial crisis 15 years ago, as banks are better capitalized and funds are more readily available.
However, central banks have also provided banks with large amounts of dollars to improve their liquidity if necessary and prevent further nervousness from escalating into a more serious crisis.
Source: I News
I am Moises Cosgrove and I work for a news website as an author. I specialize in the market section, writing stories about the latest developments in the world of finance and economics. My articles are read by people from all walks of life, from investors to analysts, to everyday citizens looking for insight into how news will affect their finances.