Global banking crisis: One big problem down. Too many others left to go

[IronLionZion]

https://edition.cnn.com/2023/03/20/investing/banking-crisis-credit-suisse-first-republic

New York
CNN
—
Credit Suisse, hobbled for decades by mismanagement, scandal and bad bets, finally succumbed to the emerging global banking crisis. Its stunning and rapid takeover by rival UBS, orchestrated by Swiss authorities Sunday, took one giant, wobbling domino off the table. Hours later, a group of central banks from around the world boosted the movement of US dollars through the global financial system to keep loans flowing to households and businesses and support the world’s major economies.

The question investors and nervous customers want answered this week: What’s next? Are other banks about to fall – or be saved? Will regulators be forced to step in with more rescue plans?

In the United States, the banking crisis began nearly two weeks ago with the sudden collapses of Silicon Valley Bank and Signature Bank over a three-day span. That sent shockwaves through the global banking system.

Regional banks with similar profiles to SVB, including First Republic Bank (FRC), PacWest (PACW) and Western Alliance (WAL), have teetered on the brink over the past week. Anxious customers have pulled tens of billions of dollars in cash from the smaller banks and placed them with bigger institutions that are better capitalized.

To pay customers their withdrawals, regional banks have scrambled to access enough cash. First Republic received a $70 billion loan from JPMorgan Chase a week ago and another $30 billion lifeline from a consortium of 11 banks, organized by US regulators, on Thursday. That still appears to be insufficient, with First Republic’s shares tumbling another 33% Friday.

Our economy can switch from "nobody wants to work anymore" to "they're stealing our jobs" real quick. Hope for the best, but be prepared for the worst.

I will come steal your job if I have to.

[MissMillie]

1. I'm probably being "Captain Obvious" here.

I was listening to a "roundtable" on NPR the other day and the participants were all praising how the big bank jumped in to rescue the little bank.

So I've now put on my tin-foil hat.

Deregulating the little banks (allowing them to take more risk) puts the big banks in the position to swallow them up. Then the big banks get bigger--too big to fail.

The big bank rescue was nothing of the sort. It's the powerful increasing their share of the power.

[IronLionZion]

2. Yup, that sounds like it

I thought we wanted banks to be smaller not bigger.

[Trenzalore]

3. Trump's Fed Chairman is doing a poor job of understanding risks

When you have banks with a large amount of their capital tied up in interest-receiving bonds and the interest rates rise significantly in a short duration, you will have banks undercapitalized because any interest-bearing instrument you purchased before 2022 must be sold at a discount.