Banks risk being transformed into mere proxies of the state, with uncertain consequences for efficient capital allocation.
© Gabriel bouys/AFP via Getty imagesThe Credit Suisse was a bank considered to be in good condition and solvent by all regulatory measures.
Over the span of 10 days, the global financial system was once again shaken.
The time frame between the
collapse of Californian lender Silicon Valley Bank, America's 16th largest bank, and
that of the 167-year-old lender Credit Suisse was approximately just that — 10 days.
And as we witness the fallout, so far it appears contained.
Stock markets are up, bank stocks seem stabilized and government bonds are in high demand. Officials reassure ad nauseam that the financial system remains strong and stable.But the truth is, even if so, what happened in this period of time has changed the financial system forever — and
worryingly, most people haven't even noticed.Governments and central banks would have you believe that in both cases, private sector solutions were found to resolve the failures.
No taxpayer funds were used.But that is likely not true.In the United States, growing calls from the country's top billionaires and hedge fund bosses to guarantee the full extent of customer deposits would, if acted on, deliver a backstop that must be underwritten by public funds. That's the case even if costs are distributed among whatever healthy banks remain later. The sums involved are eye-watering — by some measures up to
$17 trillion of unfunded liabilities.If the rule is passed — and all indications are that it will be — this would finally make the implicit explicit: that the financial system was never really rescued following the 2008 financial crisis but merely put on life-support. And that has now failed, which means socialization of the losses beckons.
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