What we’re reading (3/22)
“Credit Suisse’s Investment Bank Is Slowly Disappearing” (DealBook). “[I]t now looks like the investment bank will largely be dissolved, as UBS makes clear that it’s only interested in bits of the business, and as the Swiss government moves to bar some promised payouts to Credit Suisse’s bankers. What was once a top-flight shop of corporate advisers now appears to be a melting ice cube.”
“It Wasn’t Just Credit Suisse. Switzerland Itself Needed Rescuing.” (Wall Street Journal). “It is still far from clear whether the Swiss have fully contained the damage. Having two world-class banks was seen as a fail-safe to maintain Switzerland’s position in world markets. The forced marriage has left it with one and has shaken ordinary Swiss people and their faith in the country’s economic and political model.”
“The End Of Silicon Valley” (RiskHedge). “The collapse of SVB is an extinction-level event for Silicon Valley. The friendly “startup” bank that extended an olive branch during tough times is gone. And Wall Street giants like JPMorgan aren’t writing checks to money-losing startups. My VC contact told me, ‘Firms are clinging to their capital. Everyone I know is in survival mode. The bar is very high for new companies.’ Silicon Valley startups are now starved for funding. Many need to raise money. Most won’t be able to. Get ready for a ‘culling of the herd.’ Only the strongest will survive.”
“What Elizabeth Warren, Larry Summers, And Paul Krugman All Got Wrong About SVB” (The Nation). “SVB’s growth was indeed rapid, but much of that was back in 2021, the pandemic recovery year. The return on deposits was sweet, and the ad said, in a way that is not now reassuring, that SVB is ‘fundamentally different from other banks.’ It’s also true that SVB lobbied successfully for relief from some regulations on the ground that it d”id not pose a systemic risk. That looks bad, but SVB wasn’t a systemic risk—its peak deposits of $300 billion were a tiny fraction of US bank deposits.”
“Inadequate Capital And Unrestricted Executive Compensation Took Down SVB” (The Hill). “In the aftermath of the 2008 banking and financial crisis, I studied its causes and concluded that if banks were financed with a significantly greater proportion of equity capital, a banking crisis would be much less likely. The proposal has two components. First, bank capital should be calibrated to the ratio of tangible common equity to total assets (i.e., to total assets independent of risk) not the risk-weighted capital approach that is at the core of Europe’s Basel Committee for Banking Supervision’s regulatory standards. Second, bank capital should be at least 20 percent of its total assets. Finally, total assets should include both on-balance sheet and off-balance sheet items; this would mitigate concerns regarding business lending spilling over to the shadow banking sector.”
