3 ms·

Where are the losses? What are the impaired investments? Why were they not there in the regulator approved, big 4 audited accounts from 3 months ago?

misja111 4y ago
CS complied with all regulations, even in the weeks before the bail out. The problem was that customers lost trust in CS and in particular its management and were withdrawing all their deposits.
- blitzar 4y ago
  They didnt have hold-to-maturity losses like SVB - loss of deposits was just loss of (future) revenue.
- _0w8t 4y ago
  Which pointed out that regulating the banks is mostly pointless. They always find loopholes. The only sensible regulation is to make sure that banks never gets too big to fail. This way a bankruptcy will be mostly inconsequential even if the government insures deposits.
  - blitzar 4y ago
    I think this is my point - If Credit Suisse went bust, it is the biggest regulatory failure in banking. The regulations in switzerland are no different to any other bank in the world, likely they were more stringent requirements to hold larger quantities of capital and mark-to-market more instruments on their balance sheet. > make sure that banks never gets too big to fail Well the regulators just took two too-big-to-fail banks and merged them ...
    - mpweiher 4y ago
      Banking used to be very heavily regulated. With good reason. During the early 80s (neoliberalism, Reagan, Thatcher, Kohl, etc.) regulations were relaxed and banking deregulated. The first big bank crisis + bailout (Savings and Loan crisis) followed a year later. Banking is not a regular industry, for a bunch of reasons.
- jeffrallen 4y ago
  "We found material weaknesses in our reporting, with a result that we cannot issue our annual report as scheduled" does not sound like "complied with all the regulations". The bank run started because failing to make the annual report was the final straw after years of untrustworthy behavior.
mpweiher 4y ago
>Where are the losses? There don't have to be actual losses in the confidence game that is our fractional-reserve banking system. Banks only need to hold a certain fraction of their depositors money in liquid reserves (hence "fractional-reserve"...). Every modern bank would be insolvent immediately if all depositors decide to withdraw their money, the money that they own but keep at the bank. We rely on this being a very unlikely event, and it is unlikely as long as depositor behavior is uncorrelated. But if there's panic it becomes correlated and boom. > What are the impaired investments? Again, there don't even need to be impaired investments for this to happen, but the problem appears to be that safest of possible investments: government bonds. Which banks may even required to hold. The recent rise in interest rates means that the liquid value of the low-interest (we even had negative interest rates for Bunds, for example) bonds that banks are holding has declined massively. These bonds will still get paid out in full when reaching maturity, so the money isn't really gone and there isn't a loss. If you can wait for them to mature. But if they have to sell those bonds now because an unexpectedly high number of depositors want their money, then they have to sell them at a loss. So central banks are now facing a conundrum: raise interests rates to fight inflation, but risk the financial system going boom. Or lower rates again and risk inflation running out of control.
- blitzar 4y ago
  > bonds that banks are holding has declined massively. That would be an impaired investment. We know that of the ~200bn at SVB around 50% of it was in their hold-to-maturity accounting bucket with no provision of any loss. Credit Suisse bonds were hedged / short duration.
- have_faith 4y ago
  > Banks only need to hold a certain fraction of their depositors money in liquid reserves Worth pointing out that in the US and the UK, this amount is zero (0) at the moment. In Switzerland this looks like 2.5%. https://en.wikipedia.org/wiki/Reserve_requirement#Reserve_requirements_by_country https://en.wikipedia.org/wiki/Reserve_requirement#Reserve_re...

misja111 4y ago

CS complied with all regulations, even in the weeks before the bail out. The problem was that customers lost trust in CS and in particular its management and were withdrawing all their deposits.

blitzar 4y ago
They didnt have hold-to-maturity losses like SVB - loss of deposits was just loss of (future) revenue.
_0w8t 4y ago
Which pointed out that regulating the banks is mostly pointless. They always find loopholes. The only sensible regulation is to make sure that banks never gets too big to fail. This way a bankruptcy will be mostly inconsequential even if the government insures deposits.
- blitzar 4y ago
  I think this is my point - If Credit Suisse went bust, it is the biggest regulatory failure in banking. The regulations in switzerland are no different to any other bank in the world, likely they were more stringent requirements to hold larger quantities of capital and mark-to-market more instruments on their balance sheet. > make sure that banks never gets too big to fail Well the regulators just took two too-big-to-fail banks and merged them ...
  - mpweiher 4y ago
    Banking used to be very heavily regulated. With good reason. During the early 80s (neoliberalism, Reagan, Thatcher, Kohl, etc.) regulations were relaxed and banking deregulated. The first big bank crisis + bailout (Savings and Loan crisis) followed a year later. Banking is not a regular industry, for a bunch of reasons.
jeffrallen 4y ago
"We found material weaknesses in our reporting, with a result that we cannot issue our annual report as scheduled" does not sound like "complied with all the regulations". The bank run started because failing to make the annual report was the final straw after years of untrustworthy behavior.

mpweiher 4y ago

>Where are the losses? There don't have to be actual losses in the confidence game that is our fractional-reserve banking system. Banks only need to hold a certain fraction of their depositors money in liquid reserves (hence "fractional-reserve"...). Every modern bank would be insolvent immediately if all depositors decide to withdraw their money, the money that they own but keep at the bank. We rely on this being a very unlikely event, and it is unlikely as long as depositor behavior is uncorrelated. But if there's panic it becomes correlated and boom. > What are the impaired investments? Again, there don't even need to be impaired investments for this to happen, but the problem appears to be that safest of possible investments: government bonds. Which banks may even required to hold. The recent rise in interest rates means that the liquid value of the low-interest (we even had negative interest rates for Bunds, for example) bonds that banks are holding has declined massively. These bonds will still get paid out in full when reaching maturity, so the money isn't really gone and there isn't a loss. If you can wait for them to mature. But if they have to sell those bonds now because an unexpectedly high number of depositors want their money, then they have to sell them at a loss. So central banks are now facing a conundrum: raise interests rates to fight inflation, but risk the financial system going boom. Or lower rates again and risk inflation running out of control.

blitzar 4y ago
> bonds that banks are holding has declined massively. That would be an impaired investment. We know that of the ~200bn at SVB around 50% of it was in their hold-to-maturity accounting bucket with no provision of any loss. Credit Suisse bonds were hedged / short duration.
have_faith 4y ago
> Banks only need to hold a certain fraction of their depositors money in liquid reserves Worth pointing out that in the US and the UK, this amount is zero (0) at the moment. In Switzerland this looks like 2.5%. https://en.wikipedia.org/wiki/Reserve_requirement#Reserve_requirements_by_country https://en.wikipedia.org/wiki/Reserve_requirement#Reserve_re...