Credit Suisse turmoil fuels fears of financial contagion

First, Silicon Valley Bank failed. Then Signature Bank failed. Now in Europe, Credit Suisse is faltering.

On Tuesday, the Swiss bank announced that it had discovered “significant weaknesses” in its previous financial reports. The bank’s largest investor – the Saudi National Bank – said there was no question of disbursing more capital to support its dilapidated balance sheet.

Wednesday, Credit Suisse shares took a beating. The bank reportedly asked the Swiss central bank for help. And The Financial Times reports that the European Central Bank has asked lenders across the European Union to disclose exactly how much exposure they have to Credit Suisse.

Concern ? This financial contagion could spread globally.

Credit Suisse was already in trouble before this week, according to Cornelius Hurley of Boston University Law School.

“If there is a problem in the global banking system, Credit Suisse has acted as a spear catcher,” he said.

“Swiss credit has been plagued by scandals for some yearsadded Karen Petrou of Federal Financial Analytics.

The bank has a reputation “for flying very close to the edge, a number of serious scandals with fraudulent borrowers, woefully lax internal controls,” she said.

These issues may be unique to Credit Suisse. But in the current climate of fear and uncertaintythe CS saga worries global investors.

“Any bank of this size that is so accident-prone is a very high-risk institution. And then people look very badly at other high-risk institutions again,” Petrou said.

On Wednesday, investors looked askance at the rest of the European banking system. They are not likely to find too many problems, according to Nicolas Véron of the Peterson Institute for International Economics.

“The European Central Bank, which is the main supervisor of banks in the euro zone, has instead focused on interest rate risk and the kind of things that people are obsessed with in the context of Silicon Valley Bank these last days,” he said. said.

Credit Suisse does not pose a systemic risk to the U.S. financial system the way Silicon Valley Bank did, Petrou said. But “Credit Suisse is a systemic-level global player, so the financial system as a whole faces another significant point of vulnerability,” she said.

And is there a risk of global contagion? “I hate to say it,” Petrou said. “I think the answer is yes.”

Swiss regulators disagree. They say Credit Suisse’s problems are unrelated to turmoil in the US banking system and that they will provide liquidity to the bank, if necessary.

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