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Banks are all fragile according to one of Switzerland's leading economists
Banks are all fragile according to one of Switzerland's leading economistsInsolentiae – March 23, 2023
The Credit Suisse debacle illustrates the importance of customer confidence, it also recalls the inherent vulnerability of deposit banks, recalls Charles Wyplosz, economist at the Graduate Institute of Geneva and who is also the founder of the SNB Observatory, the Swiss National Bank which is the central bank of our Swiss friends.
What Charles Wyplosz has just said was said in the leading Swiss daily Le Temps.
Of course, banks are fragile, structurally in reality.
It's the very economic model of the banks that makes them fragile, and not just the greed of bad bankers or bad capitalists!
By definition, genetically, a bank of deposits recovers and collects the deposits of some to make credits to others. This is the profession, which is particularly fascinating, moreover, of the banker and personally I have taken great pleasure as a banker in financing companies, activities, investments and activities that benefit the greatest number.
By definition, the bank never, ever has all the money corresponding to the deposits of its customers. It uses almost everything… minus the 10 to 12% reserves!
By definition, if all customers want to recover their money at the same time, no bank has the means to meet this immediate need for cash. NONE.
By definition, whatever the regulation put in place, no bank can reimburse all deposits in a few days and NEVER a bank will be able to do so.
So when we tell you that the banks are solid, we say nonsense, because the truth, the reality, the economic model itself of the banks means that they are genetically fragile.
It's neither good nor bad.
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Three bankrupt US banks: domino effect?
Three bankrupt US banks: domino effect?International Network - March 15, 2023
The United States is probably on the verge of a new recession, with a new global crisis looming on the horizon, estimates with Sputnik Sergio Rossi, Swiss specialist in macroeconomics.
The United States is probably on the verge of a new recession, with a new global crisis looming on the horizon, estimates with Sputnik Sergio Rossi, Swiss specialist in macroeconomics. The falls of at least three US banks could have a domino effect, he said.
The failure of recent days, not only of the major California bank SVB, but also of the smaller Signature Bank and Silvergate Bank, has many similarities to what led to the 2008 financial crisis, Sergio Rossi tells Sputnik, Professor of Macroeconomics and Monetary Economics at the Swiss University of Fribourg.
Banks in difficulty are victims of a banking panic; and these difficulties quickly contaminate the interbank market, in the United States and in the rest of the world economy, he argues.
In both cases, namely the current situation and that of 2008, the rises in interest rates have caused liquidity problems for financial institutions. The problems are spreading throughout the financial markets, both in the United States and in other countries.
“This leads to a domino effect which can quickly lead to a banking crisis: the interbank market is “frozen”, because no bank wants to grant credit to another bank”, he warns.
The main difference between the two crises is that in 2008 crypto-assets were not fashionable, the expert notes. One of the currently bankrupt banks, SVB, is known for its close ties to the cryptocurrency community.
“In the current crisis, however, there are also a number of liquidity and solvency issues with crypto-assets and their associated institutions, and a significant portion of non-performing loans have no physical collateral […] . This makes the risk of a new recession in the United States likely,” he said.
Sergio Rossi emphasizes how quickly the domino effect could take place:
“Indeed, this is a clear sign that a major banking crisis is looming in the United States, which will quickly involve the entire American financial sector, especially with regard to crypto-assets, technology companies and corporations. with venture capital. The domino effect will not take long to occur, especially if the interventions of the American regulators and the American administration are not enough to convince the financial institutions”.
