Raphael Stevens

Much about the collapse of Silicon Valley Bank has been profoundly modern. The bank’s name. A client base of tech-focused venture capitalists. A panic whipped up by tweets. Cash withdrawals via smartphones. At its crux, though, the lender’s fall was the latest iteration of a classic bank run. And the solution, a central bank stepping in to backstop the financial system, was time-honoured, too. So well-trodden is the topic in economics that the lyrical phrase describing the central bank’s actions, “lender of last resort”, is often abridged to its ungainly acronym, lolr.A review of the history shows both the typical and the unique in the case of Silicon Valley Bank. There is ample, albeit imperfect, precedent for the Fed’s actions. Yet they continue a worrying trend of ever-broader interventions and, consequently, distortions to the financial system. This gives rise to questions about whether, in the long run, the Fed’s pursuit of stability harms the economy.It would be remiss for a column in The Economist to overlook the person often credited with first articulating the theory of lolr: Walter Bagehot, an editor of this newspaper in the 19th century. Over the years, his ideas evolved into a rule for how central banks should manage panics: lend quickly and freely, at a punitive rate, against good collateral. As Sir Paul Tucker, formerly of the Bank of England, has put it, the logic is twofold. Knowing the central bank stands behind commercial lenders, depositors have less incentive to flee. If a run does occur, intervention helps limit sell-offs.Nearly as old as Bagehot’s writing is the obvious objection to lolr: that of moral hazard. Foreknowledge of central-bank intervention may induce bad behaviour. Banks will hold on to fewer liquid, low-yielding assets, piling instead into higher-risk lines of business. How to prevent panics without sowing new dangers is perhaps the central question faced by financial regulators.The clearest evidence of the need for a financial backstop of some variety comes from the pre-lolr years. There were eight American banking panics in the half-century between 1863 and 1913, each delivering heavy blows to the economy. The government responded by creating the Federal Reserve system in 1913. But broken into regional fiefdoms, it was too timid in response to the Great Depression. Only in the aftermath of that crisis did America establish a true lolr framework. Power was concentrated at the Fed’s centre, while the federal government introduced deposit insurance. To limit moral hazard, other tools such as deposit-rate caps constrained banks. This has remained the general lolr template ever since: authorities both provide support and impose limits. Getting the balance right is what is fiendishly difficult.In the decades after the Great Depression, the Fed seemed to have put an end to bank runs. But starting in the 1970s, when inflation soared and growth softened, the financial system came under stress. On each occasion officials expanded their playbook. In 1970 they snuffed out trouble that originated outside the banking system. In 1974 they auctioned off a failed bank. In 1984 they guaranteed uninsured deposits. In 1987 they pumped liquidity into the banking system after a stockmarket crash. In 1998 they helped to unwind a hedge fund. Even if each episode was different, the basic principles were consistent. The Fed was willing to let a few dominoes fall. Ultimately, though, it would stop the chain reaction.These various episodes were dress rehearsals for the Fed’s maximalist responses to the global financial crisis of 2007-09 and the covid crash of 2020. Both times it created a dizzying array of new credit facilities for struggling banks. It guided financing to troubled corners of the economy. It accepted an ever-wider array of securities, including corporate bonds, as collateral. It allowed big firms to fail—most significantly, Lehman Brothers. And as markets started to work again, it retracted much of its support.Such extensive interventions prompted a rethink of moral hazard. In the 1970s the concern was over-regulation. Rather than making the financial system safer, policies such as the deposit-rate caps had pushed activity to shadow lenders. Little by little, regulators lightened restrictions. But after the financial crisis, the pendulum swung back towards regulation. Big banks now must hold more capital, limit their trading and undergo regular stress-testing. Heftier support from the Fed has come with stricter limits.In this context, the government’s response to Silicon Valley Bank looks more like another notch in the wall rather than a radical new design. It is hardly the first time that uninsured depositors have walked away scot-free from a financial calamity. Nor is it the first time that the Fed has let a couple of banks fail before introducing a credit programme that is likely to save similar firms.Hazard lightsYet every notch in the wall is also indicative of an increasingly expansive Fed. In one important respect, its assistance has been far more lavish than in previous rescues. When providing emergency credit, it is normally conservative in its collateral rules, using market prices to value the securities that banks hand over in exchange for cash. Moreover, it aims to lend only to solvent firms. This time, however, the Fed has accepted government bonds at face value, even though their market value has fallen sharply. That is remarkable. If it had to seize collateral, it could suffer a loss in present-value terms. And the programme could breathe life into banks that, in mark-to-market terms, were insolvent.The Fed has no desire to make its latest changes permanent. It has capped its special loans at just one year—long enough, officials hope, to stave off a crisis. If they get their way, calm will eventually return, investors will shrug their shoulders and banks will get back to business without needing the Fed’s support. But if they do not and more banks fail, the Fed will be left holding underwater assets on its books, absorbing financial damages that would have otherwise belonged to the market. The lender of last resort risks morphing into the loss-maker of first resort. ■Read more from Free Exchange, our column on economics:Emerging-market central-bank experiments risk reigniting inflation (Mar 9th)The case against Google hinges on an antitrust “mistake” (Mar 2nd)What would the perfect climate-change lender look like? (Feb 23rd)For more expert analysis of the biggest stories in economics, finance and markets, sign up to Money Talks, our weekly subscriber-only newsletter. More

Banking is a confidence trick. Financial history is littered with runs, for the straightforward reason that no bank can survive if enough depositors want to be repaid at the same time. The trick, therefore, is to ensure that customers never have cause to whisk away their cash. It is one that bosses at Silicon Valley Bank (svb), formerly America’s 16th-largest lender, failed to perform at a crucial moment.The fall of svb, a 40-year-old bank set up to cater to the Bay Area tech scene, took less than 40 hours. On March 8th the lender said it would issue more than $2bn of equity capital, in part to cover bond losses. This prompted scrutiny of its balance-sheet, which revealed around half its assets were long-dated bonds, and many were underwater. In response, deposits worth $42bn were withdrawn, a quarter of the bank’s total. At noon on March 10th regulators declared that svb had failed.It might have been a one-off. svb’s business—banking for techies—was unusual. Most clients were firms, holding in excess of the $250,000 protected by the Federal Deposit Insurance Corporation (fdic), a regulator. If the bank failed they faced losses. And svb used deposits to buy long-dated bonds at the peak of the market. “One might have supposed that Silicon Valley Bank would be a good candidate for failure without contagion,” says Larry Summers, a former treasury secretary. Nevertheless, withdrawal requests at other regional banks in the following days showed “there was in fact substantial contagion”. Hence the authorities’ intervention. Before markets reopened on March 13th, the Federal Reserve and the Treasury Department revealed that Signature Bank, a lender based in New York, had also failed. They announced two measures to guard against more collapses. First, all depositors in svb and Signature would be made whole, and straightaway. Second, the Federal Reserve would create a new emergency-lending facility, the Bank Term Funding Programme. This would allow banks to deposit high-quality assets, like Treasuries or mortgage bonds backed by government agencies, in return for a cash advance worth the face value of the asset, rather than its market value. Banks that had loaded up on bonds which had fallen in price would thus be protected from svb’s fate.These events raise profound questions about America’s banking system. Post-financial-crisis regulations were supposed to have stuffed banks with capital, pumped up their cash buffers and limited the risks they were able to take. The Fed was meant to have the tools it needed to ensure that solvent institutions remained in business. Critically, it is a lender of last resort, able to swap cash for good collateral at a penalty rate in its “discount window”. Acting as a lender of last resort is one of any central bank’s most important functions. As Walter Bagehot, a former editor of The Economist, wrote 150 years ago in “Lombard Street”, a central bank’s job is “to lend in a panic on every kind of current security, or every sort on which money is ordinarily and usually lent.” That “may not save the bank; but if it do not, nothing will save it.”The Fed and Treasury’s interventions were the sort which would be expected in a crisis. They have fundamentally reshaped America’s financial architecture. Yet at first glance the problem appeared to be poor risk management at a single bank. “Either this was an indefensible overreaction, or there is much more rot in the American banking system than those of us on the outside of confidential supervisory information can even know,” says Peter Conti-Brown, a financial historian at the University of Pennsylvania. So which is it?To assess the possibilities, it is important to understand how changes in interest rates affect financial institutions. A bank’s balance-sheet is the mirror image of its customers’. It owes depositors money. Loans people owe it are its assets. At the beginning of 2022, when rates were near zero, American banks held $24trn in assets. About $3.4trn of this was cash on hand to repay depositors. Some $6trn was in securities, mostly Treasuries or mortgage-backed bonds. A further $11.2trn was in loans. America’s banks funded these assets with a vast deposit base, worth $19trn, of which roughly half was insured by the fdic and half was not. To protect against losses on their assets, banks held $2trn of “tier-one equity”, of the highest quality. Then interest rates leapt to 4.5%. svb’s fall has drawn attention to the fact that the value of banks’ portfolios has fallen as a result of the rise in rates, and that this hit has not been marked on balance-sheets. The fdic reports that, in total, America’s financial institutions have $620bn in unrealised mark-to-market losses. It is possible, as many have done, to compare these losses with the equity banks hold and to feel a sense of panic. In aggregate a 10% hit to bond portfolios would, if realised, wipe out more than a quarter of banks’ equity. The financial system might have been well-capitalised a year ago, so the argument goes, but a chunk of this capitalisation has been taken out by higher rates. The exercise becomes more alarming still when other assets are adjusted for higher rates, as Erica Jiang of the University of Southern California and co-authors have done. There is, for instance, no real economic difference between a ten-year bond with a 2% coupon and a ten-year loan with a fixed 2% interest rate. If the value of the bond has fallen by 15% so has the value of the loan. Some assets will be floating-rate loans, where the rate rises with market rates. Helpfully, the data the researchers compiled divides loans into those with fixed and floating rates. This allows the authors to analyse only fixed-rate loans. The result? Bank assets would be worth $2trn less than reported—enough to wipe out all equity in the American banking system. Although some of this risk could be hedged, doing so is expensive and banks are unlikely to have done much of it.But as Ms Jiang and co-authors point out, there is a problem with stopping the analysis here: the value of the counterbalancing deposit base has not also been re-evaluated. And it is much, much more valuable than it was a year ago. Financial institutions typically pay nothing at all on deposits. These are also pretty sticky, as depositors park money in checking accounts for years on end. Meanwhile, thanks to rising rates, the price of a ten-year zero-coupon bond has fallen by almost 20% since early 2022. This implies the value of being able to borrow at 0% for ten years, which is what a sticky, low-cost deposit base in effect provides, is worth 20% more now than it was last year—more than enough to offset losses on bank assets. The true risk to a bank therefore depends on both deposits and depositor behaviour. When rates go up customers may move their cash into money-market or high-yield savings accounts. This increases the cost of bank funding, although typically not by all that much. Sometimes—if a bank runs into severe difficulties—deposits can vanish overnight, as svb discovered in ruinous fashion. Banks with big, sticky, low-cost deposits do not need to worry much about the mark-to-market value of their assets. In contrast, banks with flighty deposits very much do. As Huw van Steenis of Oliver Wyman, a consultancy, notes: “Paper losses only become real losses when crystallised.” How many banks have loaded up on securities, or made lots of fixed-rate loans, and are uncomfortably exposed to flighty deposits? Insured deposits are the stickiest because they are protected if things go wrong. So Ms Jiang and co-authors looked at uninsured cash. They found that if half of such deposits were to be withdrawn, the remaining assets and equity of 190 American banks would not be enough to cover the rest of their deposits. These banks currently hold $300bn in insured deposits. The newfound ability to swap assets at face value, under the Bank Term Funding Programme, at least makes it easier for banks to pay out depositors. But even this is only a temporary solution. For the Fed’s new facility is something of a confidence trick itself. The programme will prop up struggling banks only so long as depositors think it will. Borrowing through the facility is done at market rates of around 4.5%. This means that if the interest income a bank earns on its assets is below that—and its low-cost deposits leave—the institution will simply die a slow death from quarterly net-interest income losses, rather than a quick one brought about by a bank run.This is why Larry Fink, boss of BlackRock, a big asset-management firm, has warned of a “slow-rolling crisis”. He expects this to involve “more seizures and shutdowns”. That high interest rates have exposed the kind of asset-liability mismatch that felled svb is, he reckons, a “price we’re paying for decades of easy money”. Mr Conti-Brown of UPenn points out that there are historical parallels, the most obvious being the bank casualties that mounted in the 1980s as Paul Volcker, the Fed’s chairman at the time, raised rates. Higher rates have exposed problems in bond portfolios first, as markets show in real-time how these assets fall in value when rates rise. But bonds are not the only assets that carry risk when policy changes. “The difference between interest-rate risk and credit risk can be quite subtle,” notes Mr Conti-Brown, as rising rates will eventually put pressure on borrowers, too. In the 1980s the first banks to fail were those where asset values fell with rising rates—but the crisis also exposed bad assets within America’s “thrifts”, specialist consumer banks, in the end. Thus pessimists worry banks now failing because of higher rates are just the first domino to collapse.The result of all this is that the banking system is far more fragile than it was perceived to be—by regulators, investors and probably bankers themselves—before the past week. It is clear that smaller banks with uninsured deposits will need to raise more capital soon. Torsten Slok of Apollo, a private-equity firm, points out that a third of assets in America’s banking system are held by banks smaller than svb. All of these will now tighten up lending to try to strengthen their balance-sheets.That medium-sized banks can be too big to fail is one lesson regulators should learn from svb. The episode has upended other parables of post-crisis finance as well. “After 2008 investors thought deposits were safe, and market funding was risky. They also thought Treasuries were safe and loans were risky,” says Angel Ubide of Citadel, a hedge fund. “All of the post-crisis rule books were written on that basis. Now the reverse looks to be the case.” One parable remains intact, however. Problems in the financial system never emerge from the most closely watched places. ■For more expert analysis of the biggest stories in economics, finance and markets, sign up to Money Talks, our weekly subscriber-only newsletter. More

Chairman Ammar Al Khudairy of Saudi National Bank described the latest markets turmoil following Credit Suisse’s stock plunge as “a little bit of panic.”
He added that the recent fallout of the collapse of Silicon Valley Bank was different from the 2008 financial crisis.
He told CNBC’s “Capital Connection” that he believes U.S. regulators “have cut off any possibilities of a spillover.”

Credit Suisse’s largest shareholder Saudi National Bank said the market turmoil in shares of the Swiss lender was “unwarranted.”
“If you look at how the entire banking sector has dropped, unfortunately, a lot of people were just looking for excuses,” Saudi National Bank chairman Ammar Al Khudairy told CNBC’s Hadley Gamble on Thursday.

“It’s panic, a little bit of panic. I believe completely unwarranted, whether it be for Credit Suisse or for the entire market,” he said on CNBC’s “Capital Connection.”
His comments come hours after Credit Suisse announced that it is taking “decisive action” to borrow up to 50 billion Swiss francs ($53.68 billion). The lender’s shares plunged Wednesday after a report that the Saudi bank said it could not provide Credit Suisse with any further financial assistance.
He added that the recent fallout of the collapse of Silicon Valley Bank was different from the 2008 financial crisis, saying that steps taken by U.S. regulators to protect depositors have contained further fears of contagion.
“We did have a failure last week, but that’s nowhere near, nothing to do with what we saw in 2008. This is just one isolated incident, the regulators have cut off any possibilities of a spillover,” he said.

Message has ‘not changed’

The chairman of Saudi National Bank told CNBC that Credit Suisse has not asked for financial assistance.

“There has been no discussions with Credit Suisse about providing assistance,” he said.
“I don’t know where the word ‘assistance’ came from, there has been no discussions whatsoever since October,” he said.

He reiterated that the bank will not take its stake beyond the current 9.9%.
“The message has not changed, it’s the same since October,” he said. “Even if we desired to, there are too many complications from a regulatory and compliance point of view,” he said.

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In the 2023 application round, a record 7.7 million people took the civil service exam this year for more than 200,000 government jobs at a national and provincial level, according to CNBC analysis of state media reports.
Government jobs are typically regarded as stable and prestigious in China, especially in an economy where young people’s unemployment has soared to record highs.
For those who want a government job, they must take China’s civil service exam — whose multiple-choice section starts with questions about Chinese President Xi Jinping’s speeches and “thought.”

University students looking for jobs at a fair in Hangzhou, China. According to CNBC analysis of state media reports, 7.7 million people took the civil service exam in the 2023 application round, vying for more than 200,000 government jobs at the national and provincial level.
Qilai Shen | Corbis Historical | Getty Images

A record number of people in China took the civil service exam this year, as unemployment among young people soared.
According to CNBC analysis of state media reports, 7.7 million people took the civil service exam in the 2023 application round, vying for more than 200,000 government jobs at the national and provincial level.

Government jobs are typically regarded as stable and prestigious in China. GDP growth has slowed from its rapid pace of the past decades.
The interest in government jobs comes as Xi Jinping last week cemented his position as China’s leader for an unprecedented third term.
Xi sees unity under the ruling Chinese Communist Party as essential for building up the country. That’s meant the party has and is set to increase its presence in the economy, including among businesses that are not state-owned.

Studying “Xi thought” is a growing requirement for schools in China.
For millions of people who want a government job, they must take China’s civil service exam — which starts with questions on Xi’s report to the party’s congress and Xi thought in a multiple-choice section.

Here’s a sample question, from Gongkaotong, which sells test preparation questions for the civil service exam:

Xi Jinping’s thought on economy is an important part of Xi Jinping’s thought on socialism with Chinese characteristics in the new era. Regarding Xi Jinping’s thought on economy, how many of the following statements are correct?
① Entering a new development stage is a historical orientation of China’s economic development② Promoting high-quality development is a distinct theme of China’s economic development③Adhering to the new concept of development is the guiding principle of China’s economic development④ Insisting on opening to the outside world is the first driving force for China’s economic development⑤ Vigorously developing the manufacturing industry and the real economy is the main focus of China’s economic development
A． 2 itemsB． 3 itemsC． 4 itemsD． 5 items

The written exam consists of two parts: a 120-minute multiple-choice section on “administrative professional ability” and a 180-minute essay writing portion called “shen lun,” translated to mean “constructing and defending an argument.”
The administrative test includes questions on the Report of the National Congress of the Communist Party of China, and other rules and regulations. The exam also tests for language skills, data analysis, quantitative methods, “judgment and reasoning,” and “common-sense judgment.”

Preference for young civil servants

The state expanded recruiting at the national and provincial levels by around 15% to 20%, a decision “aimed at easing unemployment pressure, particularly for college graduates,” a state media report said, citing Zhu Lijia, a professor at the party’s National Academy of Governance.
About two-thirds of national-level civil servant positions during this round of testing were only open to new graduates, or those who graduated within the last two years and unable to find employment, according to state media.

Who’s hiring?

China’s Ministry of Public Security is the biggest recruiter at a ministry level, according to a plan published by the National Civil Service Administration.
Here’s a list of some open positions:
1. China’s Ministry of Public Security: 39 positions2. Ministry of Foreign Affairs: 38 positions3. General Office of the Chinese Communist Party: 26 entry-level positions. The department provides security, medical care and secretary work for the top leadership of the party and government.4. Cyberspace Administration of China: 20 positions, 12 of which will work at the Emergency Command Center of Internet Security. The regulator oversees content and has to authority to remove apps from app stores.
China’s National Civil Service Administration could not be reached for comment despite multiple attempts by CNBC.

Senior leaders don’t need to test

China’s civil service exam has its roots in China’s imperial examination system dating back to the 6th century.
Under that system, scholars would take several levels of tests to earn government positions — it was considered a process that gave everyone a fair chance to move up in social hierarchy.
The country’s current exam system was adopted in 1993 and in 2005, it became mandatory for all entry-level government officials.
However, Xi and other senior leaders did not need to take the civil service exam to gain their current roles.
By law, only “non-leadership civil servants below the senior staff member level and other equivalent positions” are required to take the test, not senior leaders.
The president, vice president, chairman of the Central Military Commission and other top government positions in China are chosen through a process in which national delegates discuss and nominate one candidate for each role.
Xi gained an unprecedented third term Friday through this process.
At a provincial or lower level, heads of government may face at most one competing candidate for each role.

Secure employment

Government officials in China earn a very modest salary.
But they are typically guaranteed a job for life with high social status. Preferential treatment includes bonus pay at festivals, better medical insurance and a higher pension allotment without needing to make personal contributions.
Exact figures on pay remain a sensitive topic.

We will expand employment channels to help young people realize their personal value through hard work.

Chinese premier

The latest numbers reported by state media showed civil servants earned an average of 48,608 yuan ($6,979) a year in 2012. The reports also showed Xi received 136,620 yuan a year in 2015.
For a rough comparison, the per capita salary income for urban residents was 20,590 yuan in 2022, according to official figures. Salaries vary widely in China by region and job type.
Despite longer-term forecasts of a shrinking population and workforce, the number of university graduates has climbed to record highs in the last few years in China.
“From the perspective of employment, there is certain pressure,” Premier Li Qiang said Monday in his first press conference in the role, according to a CNBC translation of the Chinese.
“We will expand employment channels to help young people realize their personal value through hard work.”

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Credit Suisse will be borrowing up to 50 billion Swiss francs ($53.68 billion) from the Swiss National Bank under a covered loan facility and a short-term liquidity facility.
The measures come after shares of the lender saw sharp declines on Wednesday after its top investor Saudi National Bank said it would not be able to provide further assistance.

People walk by the New York headquarters of Credit Suisse on March 15, 2023 in New York City
Spencer Platt | Getty Images News | Getty Images

Credit Suisse announced it will be borrowing up to 50 billion Swiss francs ($53.68 billion) from the Swiss National Bank under a covered loan facility and a short-term liquidity facility.
The decision comes shortly after shares of the lender fell sharply Wednesday, hitting an all-time low for a second consecutive day after its top investor Saudi National Bank said it won’t be able to provide further assistance.

The latest steps will “support Credit Suisse’s core businesses and clients as Credit Suisse takes the necessary steps to create a simpler and more focused bank built around client needs,” the company said in an announcement.
In addition, the bank is making a cash tender offer in relation to ten U.S. dollar denominated senior debt securities for an aggregate consideration of up to $2.5 billion – as well as a separate offer to four Euro denominated senior debt securities for up to an aggregate 500 million euros, the company said.

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Shaky share-issuances can sink banks. Silicon Valley Bank’s (svb’s) disastrous attempt to raise capital last week proved as much. On March 15th Credit Suisse found that shaky shareholders can do considerable damage, too. Saudi National Bank, the firm’s biggest shareholder, appears to be suffering a bad case of buyer’s remorse. Quizzed about any further investment in Credit Suisse, the response from the bank’s chairman was brutal: “Absolutely not, for many reasons outside the simplest reason, which is regulatory and statutory”. Investors ran for cover. Credit Suisse’s share price plunged by a quarter to its lowest-ever level, and other European banks took a knock as well. By the end of the day the Swiss regulators had released a statement saying that Credit Suisse met the capital and liquidity requirements applicable to big banks, but that it would offer the lender liquidity support if needed. Investors are unlikely to lose everything. They nevertheless have plenty of reasons for concern. Multibillion-dollar losses from Credit Suisse’s dealings with Archegos Capital, a family office that collapsed in 2021, and Greensill Capital, a supply-chain-finance company that suffered the same fate in the same year, are near the top of the list. Last year clients withdrew cash from every corner of the bank. It was all too much for one long-term shareholder: Harris Associates, an investment firm, sold the last of its shares. Newer owners have not been spared the woe. On March 9th Credit Suisse announced a delay in the publication of its annual report owing to a last-minute call from the Securities and Exchange Commission, America’s main financial regulator. The relevant accounting issues are not major, but the firm’s confession of “material weaknesses” in its financial-reporting system does not suggest the sort of polished internal procedures which would reassure investors.When shareholders finally got their hands on the report on March 14th, it made for grim reading. At the end of 2022 Credit Suisse posted its fifth consecutive quarterly loss. Raising SFr4bn ($4.3bn) late last year repaired the bank’s common equity to risk-weighted assets ratio, a crucial indicator of a bank’s capital strength. The figure now stands at a respectable 14.1%, up from 12.6% at the end of September. But few expect it to hold steady as the bank embarks on an ambitious restructuring programme and simultaneously attempts to reverse uncomfortable outflows of client cash. Plugging this cash gush is the more immediate problem. Assets managed by the wealth-management division fell from around SFr740bn to just over SFr540bn, as bankers failed to convince ultra-rich clients to park money with Credit Suisse. Little reprieve was found in the domestic Swiss bank, normally the cash cow of the business. Total outflows amounted to 8% of assets under management during the fourth quarter, obliging the bank to make use of its liquidity buffers. Although Ulrich Körner, Credit Suisse’s chief executive, hopes to trim the lender’s cost base and restructure the investment bank, there could still be more pain ahead. The remodelled investment bank, called cs First Boston, will revolve around Michael Klein. Mr Klein, who served on Credit Suisse’s board of directors until October 2022, is a dealmaking supremo famed for sitting on both sides (as a “strategic consultant”) of the mega mining tie-up between Glencore and Xstrata in 2012. In February Credit Suisse purchased his boutique advisory shop for $175m. There are reasons to take the intention to build a big boutique investment bank seriously. Credit Suisse has long excelled in advising on corporate buy-outs, which will eventually recover after a frosty 2022. Giving senior managers equity in the business is a reasonable way to attract senior dealmakers. But those preparing for the leap will this week probably have decided to pause in order to assess the damage. In the event of a catastrophic run, which still seems unlikely, few doubt the Swiss government would come to the rescue of half of the country’s beloved banking duopoly. One option would be a sale, perhaps to Credit Suisse’s better-behaved compatriot, ubs. But such a rescue mission would have a weak commercial logic, and involve considerable turbulence. As with Credit Suisse’s current plans, its success would be far from guaranteed. ■ More

Shaky share-issuances can sink banks. The disastrous attempt by Silicon Valley Bank (SVB) to raise capital proved as much. On March 15th Credit Suisse found that shaky shareholders can do lots of damage, too. Saudi National Bank, the firm’s biggest shareholder, appears to be suffering a bad case of buyer’s remorse. Quizzed about any further investment in Credit Suisse, the response from the Saudi bank’s chairman was brutal: “Absolutely not, for many reasons outside the simplest reason, which is regulatory and statutory.” Investors ran for cover. Credit Suisse’s share price plunged by a quarter to its lowest-ever level; other European banks took a knock as well. Reports swirled that financial institutions were examining their exposure to the bank. By the end of the day Swiss regulators had released a statement saying that Credit Suisse met the capital and liquidity requirements applicable to big banks, but that they would offer the bank support if needed. In the early hours of March 16th, Credit Suisse said it would borrow up to SFr50bn ($54bn) from the central bank and buy back debt. This prompted some recovery in its share price.Investors are unlikely to lose their shirts. Yet they have plenty of reason to grumble. Multibillion-dollar losses from Credit Suisse’s dealings with Archegos Capital, a family office that collapsed in 2021, and Greensill Capital, a supply-chain-finance firm that also imploded that year, are near the top of the list. Last year clients withdrew cash from every corner of the bank. It was all too much for one long-term shareholder: Harris Associates, an investment firm, sold the last of its shares. Newer owners have experienced their share of woes. On March 9th Credit Suisse announced a delay in the publication of its annual report owing to a last-minute call from the Securities and Exchange Commission, America’s main financial regulator. The accounting issues in question are nothing major, but the firm’s confession of “material weaknesses” in its financial-reporting system is hardly likely to have reassured investors. When shareholders finally got their hands on the report on March 14th, it made for grim reading. At the end of 2022 Credit Suisse posted its fifth consecutive quarterly loss. Raising SFr4bn late last year repaired the bank’s common equity to risk-weighted assets ratio, a crucial indicator of a bank’s capital strength. The figure now stands at a respectable 14.1%, up from 12.6% at the end of September. But few expect it to hold steady as the bank embarks on an ambitious restructuring programme and simultaneously attempts to reverse uncomfortable outflows of client cash. Plugging this cash gush is the immediate problem. Assets managed by the wealth-management division fell from SFr740bn at the end of 2021 to just over SFr540bn in 2022, as bankers failed to convince ultra-rich clients to park their money with Credit Suisse. Little reprieve was found in the domestic Swiss bank, normally the cash cow of the business. Total outflows amounted to 8% of assets under management in the fourth quarter, obliging the bank to use its liquidity buffers. Although Ulrich Körner, Credit Suisse’s chief executive, hopes to trim the cost base and restructure its investment bank, more pain could lie ahead. The remodelled investment bank, called cs First Boston, will revolve around Michael Klein, a dealmaking supremo. He had served on Credit Suisse’s board of directors until October 2022. In February the bank bought his boutique advisory shop for $175m. There are reasons to take the intention to build a big boutique investment bank seriously. Credit Suisse has long excelled in advising on corporate buy-outs, which will eventually recover after a frosty 2022. Giving senior managers equity in the business is a reasonable way to attract dealmakers. But those preparing for the leap will this week probably have decided to pause in order to assess the damage. In the event of a catastrophic run, which now seems unlikely, few doubt the Swiss state would come to the rescue of half of the country’s beloved banking duopoly. One option is a tie-up with Credit Suisse’s better-behaved compatriot, ubs. Such a rescue mission would have a weak commercial logic, however, and involve considerable turbulence. As with Credit Suisse’s current plans, its success would be far from guaranteed. ■For more expert analysis of the biggest stories in economics, finance and markets, sign up to Money Talks, our weekly subscriber-only newsletter. More