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In the wake of the collapses of Credit Suisse and Silicon Valley Bank, the focus on capital ratios as a measure of bank stability is being challenged. While UBS faces calls for higher capital requirements, the real lesson is that liquidity, not capital, is crucial for survival in modern banking, especially amid rapid digital transactions and shifting market sentiments. The failures of these banks highlight that even with strong capital positions, a lack of liquidity preparedness can lead to catastrophic outcomes when confidence erodes.
Circle is set to publicly file for its long-awaited IPO in late April, marking its second attempt after a failed SPAC merger in 2022. The offering, which could be the largest crypto IPO since Coinbase's direct listing, comes amid a recovering market for public listings and evolving stablecoin legislation in Congress. Circle aims for a valuation between $4 billion and $5 billion, despite facing challenges, including a significant drop in USDC's market cap and reliance on interest income for revenue.
In the wake of the collapses of Credit Suisse and Silicon Valley Bank, the focus on capital ratios as a measure of bank resilience is being challenged. While UBS faces calls for higher capital requirements, the real lesson is that liquidity, not capital, is crucial for survival in modern banking, especially amid rapid digital transactions and shifting market sentiments. The failures of both banks highlight that a strong capital position does not guarantee stability when trust erodes and liquidity dries up.
Credit Suisse's decline culminated in its takeover by UBS on March 19, 2023, following years of gradual disintegration. Despite ambitious restructuring plans under the "Kilimanjaro" project, the bank faced a catastrophic loss of client trust, exacerbated by the SEC's ban on its annual report and a bank run triggered by the collapse of Silicon Valley Bank. As clients withdrew billions, the internal control failures and ongoing disputes with regulators pushed Credit Suisse to the brink of insolvency.
Customers at JPMorgan Chase, Wells Fargo, and Bank of America now hold $2.62 trillion in uninsured deposits, significantly increasing the risk of loss in the event of a bank failure. While the FDIC insures deposits up to $250,000, anything above that is unprotected, leaving businesses and families vulnerable. The surge in uninsured deposits coincided with strong banking sector earnings, highlighting a growing concern over financial safety.
UK banks, including Barclays, Lloyds, and NatWest, are set to gain over £50bn from structural hedging, a strategy that manages interest rate risk through interest rate swaps. This approach, particularly the "caterpillar" hedge, allows banks to stabilize revenues and predict profitability amid fluctuating rates. Analysts highlight the varying strategies among banks, with Lloyds employing a dynamic method, while Barclays and NatWest favor a more mechanical approach, positioning them well for future interest rate changes.
As the second anniversary of UBS's acquisition of Credit Suisse approaches, reflections on the event reveal a shift in sentiment regarding the Swiss government's intervention. Federal Reserve Vice Chair Michael S. Barr highlighted the coordinated efforts among regulators to manage Credit Suisse's prolonged decline, culminating in an extraordinary weekend deal that involved significant loss-sharing and emergency support. This case may serve as a future reference for handling financial crises effectively.
Fear has returned to financial markets following the collapse of Credit Suisse, which saw its shares plummet 24.2% to an all-time low of 1.69 francs. The crisis was triggered by the Saudi National Bank's refusal to provide further financial support, leading to a loss of 355 billion euros in European banking capitalization.In response, the European Central Bank is demanding disclosures from banks regarding their exposure to Credit Suisse. The Swiss bank is reportedly considering borrowing up to $54 billion from the Swiss central bank to bolster its liquidity amid growing international scrutiny and political pressure.
Global markets are poised for significant shifts in 2025, driven by central bank policy changes and geopolitical risks. The US is expected to lead growth at 3.3% GDP, while the eurozone lags. Emerging markets, particularly India, show promise despite inflation concerns. Investors are advised to focus on developed markets and sectors like AI and technology, while navigating potential disruptions from protectionist policies and financial stability challenges.
The IMF warns that 3% of banks in advanced economies and 6% in emerging markets are vulnerable to rising interest rates, echoing the risks that led to the collapse of Silicon Valley Bank. Policymakers face a dilemma between controlling inflation and maintaining financial stability, as aggressive rate hikes could trigger bank runs. Enhanced regulation, stress testing, and better risk management practices are essential to mitigate these risks and ensure the resilience of the banking sector.
Silicon Valley Bank N.A.
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The information provided herein is generated by experimental artificial intelligence and is for informational purposes only.
liquidity not capital is key to banking stability in the digital age
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liquidity not capital is key to banking stability in digital age
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06:00 20.03.2025
two years after credit suisse takeover reflections on financial stability and regulation
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global markets brace for policy shifts and geopolitical risks in 2025
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