ALEX BRUMMER: Lifeboats launched as US banking crisis shows no signs of easing
The £45 billion lifeline for Credit Suisse is a landmark event. The Swiss bank has an aura of mystery and solidity, and the rescue of one of the country’s once most revered lenders, with a legacy dating back to 1856, was not supposed to happen.
The real question is whether this is part of a looming tsunami for European banks as storm clouds roll across the Atlantic.
The American bank is in turmoil. On the heels of the failure of Silicon Valley Bank (SVB) and Signature, and the bailout of depositors, comes a multi-billion lifeboat for San Francisco’s First Republic led by heavyweights Bank of America, JP Morgan and Citigroup.
U.S. woes: On the heels of Silicon Valley Bank and Signature’s failure and depositor bailout comes a multi-billion lifeboat for San Francisco’s First Republic
Amid speculation that instability in financial markets could cause central banks to put a hold on rising borrowing costs, the European Central Bank (ECB) chose to ignore the turmoil and raise key interest rates by half a percentage point to 3%.
ECB President Christine Lagarde insisted there could be no trade-off between tackling inflation and financial strains.
The cost of living must be fought by raising rates and the ECB has other tools to deal with banking problems.
Credit Suisse rocked for months with huge outflows from its asset management arm.
The action of the Swiss National Bank was triggered by the contagion from the United States. The collapses of SVB and Signature, and the instability of the First Republic, shook confidence in the loosely regulated regional banks and led to a mad scramble for security.
Politicians and regulators do not want to voice their fears of systemic failure. But the famous chairman of JP Morgan, Jamie Dimon, had no such qualms.
He told Treasury and US Federal Reserve officials at a meeting a week ago that SVB “has potential” for disruption.
As the savior of Bear Stearns and later Washington Mutual in the Great Financial Crisis, Dimon is seen as a voice to listen to. There is pressure among UK officials to put some distance between what is happening in the US and Europe, and the UK.
SVB’s UK arm was able to be sold to HSBC because Bank of England regulators, led by Sam Woods, ensured the London operation was closed so that cash deposited in London could not end up in the USA.
There is confidence that the storm can be weathered here with robust regulation.
The Financial Conduct Authority is less certain. He wrote to 291 fringe financial actors offering banking-like services, such as money transfers, urging them to address weak governance and money laundering or face closure.
In the United States, post-crisis regulatory standards for second-line banks have been eased by the Trump administration with support from senior Democrats and the Federal Reserve.
A “silent run” on the banks is what cannot be seen or heard. The queues outside Northern Rock branches in 2007 were real enough – but less recognized is that consumer behavior was being imitated by the biggest beasts in the money markets.
Britain’s big banks are no longer so reliant on short-term funding.
But the model of challenger financial groups, some of which are still struggling to obtain a license, is very different. No one can discount a flight for safety. The Bank of England may have a tight grip, but even the best regulators struggle to reverse market trends.
Considering that John Lewis has reported a huge loss, its charismatic president, Sharon White, worries about the outlook.
Despite the loss of market share at Waitrose to Aldi and Lidl, the number of customers is increasing.
Heavy investment in price competition means shoppers can take advantage of daily prices on 300 food items. The Anyday range is a great success.
White must continue with his “efficiency” agenda. After taking out £300m of costs, there’s still £600m to come. No doubt more partners will be paid.
Worry among John Lewis devotees is that much-loved choice and service will run out with the bathwater.
Here’s a quick question: what do Silicon Valley Bank, Signature, and First Republic have in common, besides tech customers and bankruptcy or near-bankruptcy?
All are audited by Big Four firm KPMG, a veteran of previous crises in the UK Co-op Bank, Carillion and elsewhere.