This is an edition of The Atlantic Daily, a newsletter that guides you through the day’s biggest stories, helps you discover new ideas and recommends the best of culture. Sign up for it here.
The near-collapse of global banking giant Credit Suisse, shortly after the collapse of two high-profile American banks, is complicating regulators’ efforts to restore confidence in the banking system. It is also fueling fears of contagion affecting the global financial sector. Experts say it’s not a crisis – but we’re not sure yet.
First, here are three new stories from The Atlantic:
Swimming naked
On Sunday, one of the world’s largest banks, Credit Suisse, narrowly escaped destruction when it was bought by an even larger Swiss bank, UBS Group, in a government-brokered deal. The hasty move managed to avert the bankruptcy of the too big to fail lender. But after the bankruptcy panic that precipitated the fall of Silicon Valley Bank and Signature Bank in the US — not to mention the First Republic’s current precarious position — it’s fair to say that the world’s financial institutions and their customers are scared are .
Wobbly confidence in global financial markets could lead to further problems and possibly trigger a massive cascade of bank runs that destabilize the entire system. At the moment this possibility is not off the table. But is it a crisis?
“I would say no,” says Arthur Dong, an economics professor at Georgetown University. But we did get a preview of what might happen next, he told me.
In short, after years of very low interest rates, the decision in the US and elsewhere to raise interest rates to curb inflation has resulted in a declining asset. This, in turn, led to whispers from savers about shifting their holdings and not entirely unfounded fears of bank failure. For SVB and other lenders who similarly serve a narrow group of customers (who are more likely to react as a diversified pool to market changes in a unified manner), these conditions can become a major stress test for customer confidence. And as the SVB has shown, bank failures don’t exactly ease public fears – even when the federal government and regulators step in to protect customers’ inventories, as was the case with the SVB.
Dong acknowledged that the current climate of economic uncertainty, while the sagas of SVB, Credit Suisse and others have certainly sent “shockwaves through financial markets” (and caused concern among the average consumer about whether their deposits are safe). is likely to be seen as a temporary shock rather than an existential catastrophe. “There are other institutions out there that could be at risk like the SVB was at risk, but I don’t think it’s a global crisis,” Dong said.
But while it’s not a full-blown crisis, it could be a “mini-crisis,” suggests Paul Kupiec, a senior fellow at the American Enterprise Institute. “Could it get any worse? Yes. Could it just be a bump going away? Yes.”
Kupiec says if the Fed keeps raising rates, many institutions will see their mark-to-market losses worse. More people could be persuaded to withdraw their deposits, which could have far-reaching consequences – especially if multiple banks are able to replace those deposits (on which they had long collected minimal interest in the early days). 1st place) with Federal Reserve loans, which already have a target interest rate range of 4.5 to 4.75 percent and are expected to climb even higher.
“We’re not quite out of the woods yet,” Kupiec told me. “We could avert a panic. However, there will be some pain in the future.”
“It’s happening in this type of environment with higher volatility and very rapid rate hikes around the world,” Dong noted. “And it will very quickly reveal the weaknesses of banks that weren’t necessarily in a state of collapse, whose balance sheets were pretty creaky to begin with.
“When the tide recedes, you kind of see who’s swimming naked there,” Dong added with a chuckle, borrowing a well-known aphorism from investor Warren Buffett. “I think that’s more the issue here than widespread or global financial contagion like we saw in 2008.”
For now, we can expect more damage control. Treasury Secretary Janet Yellen told a conference of American bankers earlier this morning that she stands ready to protect depositors at smaller US banks in the event of a future bank run, if necessary.
We cannot know what will happen next. But the picture of what has happened up to this point and how to read it comes into focus. As my colleague Annie Lowrey wrote last week about the SVB collapse and bailout:
There is no success story here. The complexity of financial regulations and the tediousness of accounting details should not mislead any American into understanding what happened. Even the absence of a widespread meltdown should not make anyone optimistic. The bank failed. The government has failed. Once again, the American people are supporting a financial system that is incapable of protecting itself.
Related:
Today’s News
- Classes for nearly half a million Los Angeles students were canceled as bus drivers, janitors, cafeteria workers and other educational workers began a three-day strike.
- Surveillance video from a Virginia state mental health facility shows a group of employees and sheriff’s deputies pinning a black man named Irvo Otieno to the floor for about 11 minutes before he died.
- Chinese leader Xi Jinping and Russian President Vladimir Putin declared their economic partnership and signed 14 agreements.
broadcasts
Discover all our newsletters here.
Evening reading
The Atlantic; Source: Library of Congress
Awakened is just another word for liberal
By Adam Server
Conservative author Bethany Mandel, a co-author of a new book that attacks “awakeness” as “a new version of the left aimed at your child,” froze on a cable news show recently when asked by an interviewer became how she defines “alertness,” the term her book is about.
On the one hand, any of us with a public job could experience a similar moment of distancing on live television. On the other hand, the moment and the debate it sparked revealed something important. Much of woke’s usefulness as a political epithet stems from its ambiguity; It often allows its users to condemn something without being uncomfortably explicit about the reasons for their objection.
Read the full article.
More from the Atlantic
cultural break
Getty / The Atlantic
Read. Rebecca Makkai’s novel I Have Some Questions for You explores the line between justice and revenge.
Regard. Living (available to rent on multiple platforms), a film by Kazuo Ishiguro that interacts in a variety of ways with the universe of his novels.
hp
If you’re scratching your head at the current banking saga or wondering why global finance seems somehow made up and weird, I have the book for you – Filthy Lucre: Economics for People Who Hate Capitalism by University of Toronto philosophy professor Joseph heath Don’t let the title fool you; You don’t have to hate capitalism to appreciate Heath’s reasoned, ideologically balanced struggle against a dozen beliefs (or, as he puts them, misconceptions) about the global free-market system.
When Filthy Lucre came out in 2009, I was a college super-senior preparing to graduate from the University of Toronto and smack into the raging global recession, a fluke I wouldn’t recommend. Several of my friends had been students of Heath’s, and a copy of his book ended up on my shelf. This hardcover edition has been lost over the years. But lately I feel like visiting it again.
—Kelli
Isabel Fattal contributed to this newsletter.
Comments are closed.