Last minute of the banking crisis, the markets and the purchase of Credit Suisse by UBS

Last minute of the banking crisis, the markets and the purchase of Credit Suisse by UBS

Global banking crisis: one problem is gone, many others remain to be solved

A man takes a picture with his mobile phone of a market board at the headquarters of Swiss banking giant UBS in Zurich on March 20, 2023. (Credit: FABRICE COFFRINI/AFP via Getty Images)

Credit Suisse, plagued for decades by mismanagement, scandals and mismanagement, finally succumbed to the emerging global banking crisis. Its impressively swift takeover by rival UBS, orchestrated by Swiss authorities on Sunday, removed a giant, wobbly domino from the table. Hours later, a group of central banks from around the world fueled the movement of US dollars through the global financial system to keep lending flowing to households and businesses and support the world’s major economies.

The question nervous investors and clients want answered this week: What’s next? Are other banks about to fail or be saved? Will regulators be forced to step in with more bailouts?

Some regional banks have been on edge in the past week, with eager clients pulling tens of billions of dollars in cash from smaller banks and putting it into larger institutions that are better capitalized.

To pay customers their withdrawals, regional banks have scrambled to access enough cash. First Republic received a $70 billion loan from JPMorgan Chase a week ago and another $30 billion lifeline last Thursday. That still appears to be insufficient, as First Republic Bank shares fell another 33% last Friday.

Many other banks, whose identities will likely remain unknown for quite some time, have applied for emergency loans from the Federal Reserve over the past week. Banks borrowed a record $153 billion from the Fed’s discount window last week, a last-ditch option for banks to get quick access to cash.

The good news: Those loans do not indicate anything inherently wrong with the global banking system. None of the banks that borrowed from the Fed’s discount window borrowed on secondary credit terms: emergency overnight loans that help deeply troubled banks keep the lights on. Those loans come with severe restrictions and more oversight from the Federal Reserve.

The fact that the Fed’s loans were primary credit “indicates that banks in need of emergency support are considered by US banking supervisors to be ‘healthy’ and not at elevated risk of imminent failure,” Jill said. Cetina, Moody’s analyst, in a note to investors Friday.

The bad news: Banks may be generally healthy, but all that borrowing shows just how much pressure the financial system is under right now.

The stress means that banks may be reluctant to lend money, adding more scrutiny to the creditworthiness of borrowers. That means fewer mortgages and less money flowing to businesses, which could slow the global economy.

That is why the central banks intervened this Sunday. Their coordinated action, the likes of which the world has not seen since the European debt crisis a decade ago, represents the first indication that the banking crisis could have lasting and damaging effects on the global economy.

— ‘s Matt Egan and Phil Mattingly contributed to this report.

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Written by Editor TLN

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