Reply With QuoteThis is worth a listen
https://www.bbc.co.uk/sounds/play/w3ct3k64
OK, this is focussed around SVB, but the principles are pretty much the same
I don’t understand how big banks like Credit Suisse can fail.
They must have loads of educated well paid staff constantly running the numbers to establish their risk positions and run endless scenarios to ensure they are appropriately balanced with their various risks.
Where are the regulators; how do they allow this to happen?
Last edited by Montello; 20th March 2023 at 13:52.
This is worth a listen
https://www.bbc.co.uk/sounds/play/w3ct3k64
OK, this is focussed around SVB, but the principles are pretty much the same
Borrowing short, lending long tends to be one thing. Tempting to do so, Works fine until something changes. And then it doesn’t. There are regulations galore now to try to prevent this, but, to paraphrase Malcom the “chaotician” in Jurassic Park, greed will find a way.
Another is trying to be everything everywhere all at once. CSFB always wanted to be a major “bulge bracket” global investment bank / asset manager but never really had the footprint. Others fell in to this trap too.
They end up spending a lot of money to have their name on the door in offices all over the world, local licenses, staff and capabilities but not quite large enough to have economies of scale. Quite the opposite: a huge cost base spread across not enough business in too many places.
CSFB always wanted to be UBS. I guess they finally succeeded.
TT (Disclosure: I worked there in the 1990s…)
I think we all agree Raffe knows his finance and I'm pretty sure I remember him posting up a while ago saying how much he disliked Credit Suisse, question is are there anymore to come out of the shadows with their hands up asking for a bailout..
I think its probably just corporate greed, take risks, fly close to the edge to be competitive, if everyone else is doing it then you might think you have to do it to stay in the game, oh, and lack of accountability.
Cheers..
Jase
Forgive my obvious naivety, seems that poor folk gamble with their own money, whilst the banks gamble with other peoples,
https://youtu.be/7EjdC0pjo1A
"Once is happenstance. Twice is coincidence. The third time it's enemy action."
'Populism, the last refuge of a Tory scoundrel'.
Would seem that is the bottom line.Originally Posted by number2
We were told that since the sh1t show of 2008, bank regulations had been tightened such that this could never happen again.
There will always be animal spirits that need to be controlled and regulated. Incompetence is not a crime.
I fully blame the regulators and central banks, which I now hate with a passion.
Then you'll love this show :-)
https://www.youtube.com/watch?v=T2IaJwkqgPk
^^^I will watch that.
Maybe the latest Fed chair will also get the Nobel Prize for economics as per Bernanke.
I have very limited knowledge of the banking system but it seems to me that it has all become so exceptionally complex and complicated, with a myriad of absurd ways of doing what banking fundamentally is - moving money from one place to another- that nobody can really understand what’s going on at any given time. There are just too many variables.
When any system becomes too complicated it is prone to failure because if any one of the functions fails there can be a rapid and catastrophic domino effect.
To make matters worse, the vast majority of transactions are now handled by logarithms that work so fast that they are far beyond human control or comprehension. I read once that the world financial system now handles as many financial transactions per second as took place in the entire decade of the 1960’s. I can believe it.
Such a complex system will always be inherently unstable. It’s the very definition of becoming too clever for your own good.
Just my views as a layman.
If a bank breaks those regulations though, then it's no longer incompetence, it is a crime. If you've got all the required controls in place, people can't exercise their 'animal spirit' without deliberately circumventing them. Credit Suisse has had a series of fines over the last decade for various breaches, tax evasions, spying etc etc so either the controls and authorities weren't in place or their culture was decidedly rogue.
One of their ex-directors recently joined my wife's company as a NED and strongly recommended exiting any investments they had with Credit Suisse.
As for banking regulations being tightened, I thought that in this liberated time where we're no longer dictated to by Brussels, the government were going to reform and relax the financial regulations... so what could possibly go wrong there? Or maybe that's one for the BP.
As a post above mentioned the system seems to have become so complex with all sorts or convoluted "investments" that these types of event seem to surprise the very people that construct the investments.
Last edited by Montello; 20th March 2023 at 13:53.
In the 1960s, Mr George W. Ball, an eminently successful lawyer, politician and diplomat, left public office to become a partner of the great Wall Street house of Lehman Brothers. "Why," he was heard to ask a little later, "didn't someone tell me about banking before?"Money, JK Galbraith
What I find disturbing is how many go from banking into politics..
Last edited by number2; 20th March 2023 at 13:26.
"Once is happenstance. Twice is coincidence. The third time it's enemy action."
'Populism, the last refuge of a Tory scoundrel'.
Anyone remember the heady days pre 'de-regulation' intended to 'increase consumer choice' hmmm
when.
Banks were Banks - deposits, loans, business lending, daily banking needs etc.
Building Societies were building societies - mortgages on property, savings accounts.
Investment Brokerages - handled investments, stock market transactions.
Post Offices - had your Grans money and sold stamps.
Blurred lines ?
CS was presumably regulated primarily by the Swiss authorities, surely? Is there any suggestion UK regulated banks are at risk?
Their UK operations would be regulated in some way by the PRA and/or FCA.
I'm no expert but it looks like this is far more of a Credit Suisse problem than a general banking problem. It doesn't look like it's particularly related to SVB either.
Greed, as reliable today as it's always been.
Almost zero bankers were harmed/ jailed, in 2008/09.
There is a lot of misunderstanding posted here. These are very large corporates with tens of thousands of employees, and all traditional functions of sales, marketing, IT, ops, finance, etc. Banks are not that different from many other large firms in FMCG, retail, tech, or healthcare. They receive client money and external investment, they operate, and provide/produce a series of products and services for beneficiaries. And like many other corporates, banks are accountable to their shareholders to be efficient with capital, operate efficiently and without breaking laws, and deliver results/performance for their shareholders. Those who don’t understand banking, the economics of global markets, or the complexities and interdependencies of liquidity management should refrain from judgment. Hindsight is always a wonderful thing, and I believe modern governance of large banks - especially those such as CS - are generally always trying to act in the best interests of clients, employees, and the shareholders to whom they are accountable and generally play within the rules set by industry regulators. The drastic move in rates by central banks has hurt many, and very very few of the industry market participants could have expected Covid, the war, and sustained impact on businesses into 2023. We are all paying the price right now. I hope CS staff get to keep their jobs, but there will no doubt be significant layoffs in due course, regardless of what they have said in the press so far. There will be redundancies as the banks merge and seek operational efficiencies.
Banks are different because we've apparently got a fully globalised and integrated structure which is so reliant on a essentially a faith based system, upon which we all must rely... trust is all, knock one peg out and watch em wobble.
Last edited by Passenger; 20th March 2023 at 23:17.
Once you hear a rumor. people make a run to withdraw their money. Bank in Beirut froze funds to prevent massive withdrawals and a recent protest in China over frozen accounts.
I did a check. There are a little over 4000 individually name banks in the US. There are 34 in Canada and two union banks in order to prevent what happened in the US.
I'm guessing in the US. Lot of little towns not large enough for a major bank, so you get these little banks that can't survive a major withdrawal when it happens
If you stick to a major named bank. You should be fine
Credit Suisse has been in trouble ever since 2008 - they narrowly avoided collapse themselves and never recovered. This has been on the cards a long time.
It is similar to any global supply chain. Trust is the foundation for any relationship that agreements are based on. The monetary policy supply chain of M1 capital requirements between banks means that a sudden default in loans, or similarly unexpected withdrawal of M2 cash, will always present a risk to the supply chain that links banks and central banks. In retail and manufacturing, look what happened when the Evergreen container ship got stuck in the Suez. Yep- businesses couldn’t deliver to end customers. No different to banks when such shocks happen.Banks are different because we've apparently got a fully globalised and integrated structure which is so reliant on a essentially a faith based system, upon which we all must rely... trust is all, knock one peg out and watch em wobble.
I heard this on a Planet Money podcast and not heard it referred to elsewhere:
After 2008, in the Frank-Dodd Act, if you had assets of $50bn you were "a systemic risk" (my phase) so subject to further checks
In the 2010s banks complained - far too onerous, unfair, we've changed. SVB amongst others lobbied to change the benchmark to be $250bn. Congress relented in about 2017 - SVB and others now face fewer checks. People who campaigned against this INCLUDED REGULATORS.
SVB failed recently and assets were about $235bn
Why hate the regulators? They do what they are told to do. Hate the banks who squeal (about the regulators) and the politicians who pander to them.
"Incompetence" is not a crime? Is it never the banker's fault then?
Similar but different imo...because of covid the supply chain bringing my pool table, doubtless parts possibly assembly in China, broke down as you say, upshot I had to wait 18 months for it, no biggy really, the world didn't end...but if, when people can't get ready access to their money, or banks won't make loans because of a break down of trust, it's kind've a different scene, there's potentially more serious consequences, folk get upset and economies stop.
Last edited by Passenger; 21st March 2023 at 15:47.
Something changes in the macro economy that exposes holes in their risk management/stress tests. Those banks with the most concentrated portfolios and clients are the most exposed.
Just read in Money Week there have been 564 bank failures in the US since 2001.
Maybe we should be less surprised.
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