Banking crisis: wobbles on the tightrope of the markets

"The US banking system is much

more fragile than you think."

Financial Times 

When the financial universe shakes from one side of the ocean to the other and at nearly the same time, it's hard to assume

Time seemed to return to the days of

with the collapse of the two US banks last weekend, and then in Europe, with the collapse of none other than Credit Suisse, an entity of such such a size that the protagonists of the North American collapse would be lost within it. 

But what has happened is not a contagion or domino effect, one event upon the other, as occurred in the economic and financial collapse of 2008, a

that everyone now remembers with the fear that it would materialize again.

The bankruptcy of the intermediate banks, the Californian Silicon Valley Bank and the New York Signature Bank, has its own dynamics and is different from those that brought the

second largest entity in the supposedly predictable and long-standing Switzerland to the

The point in common that does exist between both events is more abstract, but no less important.

It is linked to an old problem in the system, deregulations granted or

Conditions and audacity

The provocative notion of “financial creativity”, which explains these behaviours, is based on the idea that any initiative is possible if the

to carry it out exist.

The SVG crisis is the stormy end of an entity specialized in technology startups.

These firms

 by the largest and most demanding banks due to the difficulties in guaranteeing that there will be a repayment of their credits.

They are companies with good projects but without initial strength.

Concerned customers line up at a Silicon Valley Bank branch in Wellesley, Massachusetts.

Photo Reuters

At the same time, they represent

that links with innovation and, of course, with the vocational commitment to success, all bathed in a certain nationalist presumption.

“We are not banks, we are the innovative economy.

This is the US versus China”, a banker told a financial medium, demanding that the State defend these banks without bothering them with uncomfortable inquiries.

The Standard, much smaller in assets and size, moved after the up-and-coming niche of cryptocurrencies, another sinuous specimen of modernity.

There

The same thing happened with the First Republic, another of the tech companies,

by eleven banking giants who transfused 30 billion dollars.

Everything sounds at some point to a rearrangement of the market in favor of these giants.

These companies and the banks come from moments of particular fortune in their development.

One of them was with the flow of money that the State injected after that

with the

In

simple terms, this device allows a Central Bank, the US Federal Reserve for example, to buy market securities, pressing down interest rates by

.

The tool provides banks with more liquidity by facilitating greater lending and investment.

The United States and the Eurozone, at different times, used this system as a pillar to sustain the economy during the first years after that

that marked the end of the George W. Bush government.

Another, more recent moment, was on the side of the pandemic.

The Covid produced another economic earthquake with a fall in employment, economic activity and supply, one of the reasons, not the only one, for

The governments attacked the problem with torrents of money that went to consumption, with direct checks in the hands of the unemployed and, at extraordinary levels, to the

companies and banks.

Now, faced with the reality of the flames of the fire, it is repaired in events that happened in full view of all.

US Secretary of the Treasury (Treasury Minister) Janet Yellen.

AFP photo

Critics of the behavior of Silicon Valley Bank write down in their notebook distortions such as

 a huge package of uninsured deposits and investments in long-term Treasury bonds whose value is known to have plummeted with the rise in interest rates.

In concrete numbers, the bank's portfolio went from 27 billion dollars in the first quarter of 2020 to

Dennis Kelleher, one of the directors of

, a well-known civil group that pushes for clean behavior in the markets, told Reuters

"it is inexplicable that the Federal Reserve did not foresee this obvious threat to security and soundness of the banking system and financial stability”.

the salvage

The case of Credit Suisse is much more complex due to the size of that institution, which explains why its tremor on Wednesday dragged

the prices of leading banks on both sides of the Atlantic to

There is everything in the history of that entity with 167 years of life, but which entered a cycle of decline in recent decades.

Just a slight glance detects reputational scandals, with lies from its directors to its own investors who denied that the entity was losing funds, as well as

with all kinds of corrupt tribes and money launderers.

Already last year Credit Suisse suffered the withdrawal of liquidity for about 130 billion dollars.

In those 12 months, its market value had

, almost the same as it resigned this Wednesday, until the Swiss National Bank came to the rescue.

The performance of Credit Suisse, to call it something, is another example of financial "creativity", a phenomenon that was born after the rupture by Richard Nixon together with Milton Friedman of the Bretton Woods agreements ending 27 years of 

.

That 1971 episode triggered a speculative race for survival with the birth of investment banks. 

Movements of operators in the New York Stock Exchange.

AFP photo

The cycle of "creativity", that everything is possible, had its most lavish peak with the

, the largest in the history of capitalism - which reported debts as profits to the Stock Market - in the first Bush govt.

Then, in the second, with the bankruptcy of Lehman due to the subprime mortgage business that unleashed global chaos with financial and political effects that still persist today.

Swiss regulators decided not to repeat that failure and avoided the bankruptcy of Credit Suisse and its serious consequences.

They did so with the promise of an endless flow of money that

and opened the door to the eventual purchase of the entity by the other big Swiss bank, UBS.

The Federal Reserve and the US economic authorities, on the other hand, did not save the two banks, but they did save the depositors, which implies the same thing in terms of results.

The White House took much of Sunday to decide what to do until it offered

It will be

with companies that had billions of dollars buried in that entity.

As in the case of the Swiss bank or the First Republic, these movements immediately dissolved the panic.

It would seem that these aids make sense and are justified to avoid an escalation of collapses.

But there is much more beating under the surface than what is generally known and what is

The

recently published a study under the heading of this column, conducted by a handful of economists from five universities.

The result can be shocking.

They noted that at least 190 banks face the "risk of

," which would total some $300 billion.

But the most disturbing point confirmed the presence of

about the consistency of the system.

The study determined that the market value of the assets of the entire US banking structure is two trillion dollars (million) less than the indicated book value of its assets.

look too

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