Domino Effect of Silicon Valley Bank Collapse: Credit Suisse Bought by Rival UBS
The Silicon Valley Bank collapse has raised questions over the potential consequences for other banks across the world. As investors cut exposure to lenders from New York to Japan in the wake of the SVB crisis, global financial stocks lost $465 billion in market value, two days after the SVB announcement. After almost 40 years of existence, SVB disappeared in about 40 hours.
Four days after that, Signature Bank collapsed, and then, a week later, Credit Suisse–Switzerland’s largest banking group–was on the news as it hit the brink of a breakdown. It was a domino effect.
Credit Suisse got a bailout from the Swiss Central Bank but it could not save the bank. The only way out was to sell! Brokered by the Swiss Government, Credit Suisse was bought by Union Bank of Switzerland (UBS)–its rival. Financial experts have called it historic.
Credit Suisse Sold for Half its Value: Swiss Bank Merger amid Global Financial Upheaval
It was the upheaval in the global financial markets that led to the final episode of the stunning fall of Credit Suisse–166-year-old financial institution. The downfall has been in the making for years–from scandals to failed attempts at reform. The market value of Credit Suisse was $8 billion on March 17, 2023; however, it was sold for less than half of its value. UBS paid just $3.3 billion for the bank, and the Swiss reserve bank will lend more than $100 billion–all this to ensure liquidity.
The merger happened because Switzerland was worried that the bank could go under the bankruptcy of a global system. It was a bitter pill to swallow but the crash could have caused irreparable economic turmoil in Switzerland and throughout the world.
Europe is still grappling with the fallout of Credit Suisse, while in the US–the place where it all started–the condition is precarious. Panic is still in the air. There is another ticking bomb–the First Republic Bank. Major banks have stepped in to save First Republic by raising $30 billion, but the fate of the bank hangs in balance as its shares keep plummeting. Surely, the financial markets are walking on eggshells.
First Republic Bank Stock by Yahoo! Finance
Global Central Banks Unite to Avert Financial Disaster Amid Banking Turmoil
The world’s biggest central banks are trying to avert a financial disaster by pushing more and more dollars into the market. Six central banks are working in tandem–Bank of England, Bank of Japan, Bank of Canada, European Central Bank, the US Federal Reserve, which is America Central Bank and the Swiss National Bank.
The financial turbulence hit Japan as well. Japanese mega-banks, including Sumitomo Mitsui Financial Group, Mizuho Financial Group and Mitsubishi UFJ Financial Group, fell between 10% and 12%, erasing 2.67 trillion yen ($20.27 billion) in market value, after Credit Suisse announced that it would borrow up to 50 billion Swiss francs ($54 billion) from the Swiss National Bank after a slump in shares triggered market anxiety.
In the light of the banking turmoil, Japan’s Central Bank announced that they would delay any changes to its monetary policy. Although wary of the financial crisis, Japan believes that the difference in structure of bank deposits means that it is unlikely to see a similar crisis; risks to the stability of the Japanese financial system are mitigated, by ample liquidity and capital buffers.
As for the markets, they still remain very reactive and susceptible to further volatility. Bank runs and failures could infect financial systems across the world; it could cause widespread risk-off moods leading to further losses in stocks and riskier assets.
Meanwhile, gold prices passed $2,000 for the first time in over a year, as the financial crisis in the US and Europe triggered purchases of safer assets, especially gold. While banking seems to be facing a “2008 moment”, authorities and financial experts have been reassuring the world to not worry of a contagion.
There is uncertainty in the story ahead but it is definitely far from over.
