Credit Suisse sheds nearly 25%, key backer says no more money | Hacker News Reader

Credit Suisse sheds nearly 25%, key backer says no more money

reuters.com

420 pointsintunderflow576 comments

Isn't Credit Suisse the bank that laundered and legitimized all the money from the drug cartels? They kept getting slaps on the wrist for a bunch of atrocities and bad choices and now finally they are seeing some repercussions of those choices?

Yep. I went and quickly looked them up on Wikipedia. They have a list of controversies so long that the outline of the "controversies" subheading won't even fit on my phone screen.

Drug cartel money, strong ties to the Russian oligarchy, forex manipulation, corrupt dealings with African governments, destruction of records, tax fraud.

The list is extensive to say the least.

> The list is extensive to say the least.

Sometimes I wonder if the Swiss newfound love for a weirdly biased neutrality, which goes to the extent of destroying their own military gear instead of selling it to Ukraine, is rooted in appeasing certain Russians who stashed their fortunes in financial institutions such as Credit Suisse.

I think you are thinking too specifically. Neutrality is to appease all the rich that have stashed their fortunes. If most of the world condemned the US or China for an aggressive act, I would expect them to act the same.

If they take a side, they lose the fortunes of more than just Russians. Anyone who is controversial and has money in Switzerland will realize it’s no longer safe in the event the world exposes their bad deeds.

> newfound love for a weirdly biased neutrality

Switzerland has always been aggressively neutral to the extent of annoying the rest of Europe, not just during WW2 but all the way back to the Hundred Years War.

Switzerland's doctrine of neutrality is not newfound, rather it's a strategy they've built into their geography over centuries. They're nestled between mountains, so it would be pretty difficult for any other nation to attack them, but up until 1945, Europe was home to very frequent wars of conquest, which were devastating to property and people. Switzerland's strategy was to lean into their natural defenses by building hundreds of thousands of bunkers [0] in the mountains and signalling "Hey, we aren't looking to attack you, but if you invade, watch out for our extremely well fortified defenses. By the way, would you care to keep your valuables in our vaults? Lots of pillagers out there in the rest of Europe."

(but seriously, skim through the video. Switzerland's defenses are wild and beautiful.)

[0] https://www.youtube.com/watch?v=9bPIaHg11mI

Anyone trying to spin a geopolitical explanation for Credit Suisse’s malaise is lost. Switzerland has many banks. They’re doing fine. Credit Suisse is not because it’s the poster child of bank mismanagement.

Well, if you wonder, I can help you. What you think might be plausible on first sight, but really isn't.

* the neutrality isn't "newfound", they have it since the Vienna Congress 1814/1815

* back then the big powers of Europe feared that Switzerland will join one of their opponents, so it was dictated to Switzerland originally

* but later, when Switzerland saw how the countries surrounding them got demolished again and again in each war, they actually adopted it. It is now in their constitution, article 185.

* Switzerland is a direct democracy. The constitution cannot be changed by the government. And not even by the parliament. Only a public vote of all the electorate can change it.

* the swiss electorate is about 6 million people large

* the swiss banking sector only employs about 89'000 people

So, what can we learn from this? Your postulation is, in all likelihood, wrong. Why would normal people, like Carpenters, Farmers, Teachers, Nurses vote for neutrality to "appease certain Russians" ? They have no benefit from this.

Also, Switzerland isn't the only (current) neutral country in Europe. We have Austria, Ireland and some smaller ones, like Liechtenstein. We used to have also Portugal, Sweden or Belgium there --- is any of these current or previously neutral countries linked with money laundering? I don't think so. Therefore we can even dismiss that somehow money laundering is linked to neutrality.

If anything, then something else in the swiss law system is responsible: their banking secret laws. One can still open an anonymous "number account" at swiss banks. It's not cheap, but that is just one more reason why it attracts tax evaders and criminals.

And finally, that today Switzerland is specially linked to Oligarchs needs a proof. Why? Simply because Switzerland implemented all of the nine sanction packets of the EU. Despite not being in the EU. So Switzerland, like any other EU country, sanctions the Russian state, certain russian companies, certain russian individuals. Including some people one would classify as "Oligarch". All of them? Probably not. But then again ... this would be a problem of the EU, by not adding them to the sanction lists yet.

It seems like a lot of it would be due to adverse selection, and that's not something new. Lots of people don't need Swiss bank accounts. What are the characteristics of people who do?

Being Swiss is a good reason to want a Swiss bank account. Rich foreigners might be a little suspicious?

It's somewhat similar to who really needs cryptocurrency, except you don't get the enthusiasts or small accounts, either.

Maybe look at who unmoderated "free speech" forums become popular with. Or who needs to use Tor.

The country is 1/3 German, 1/3 french, 1/3 Italian.

Given European history their options are neutrality or extream internal strife.

You are overusing your Ukraine conflict lens when viewing the world.

Their President literally said "Swiss weapons must not be used in wars."

Certainly a novel take for an arms dealing country.

Newfound love for neutrality? The Swiss? You’re joking right?

> destroying their own military gear instead of selling it to Ukraine

What?

No. They helped African militaries too. They would have helped American criminals and oligarchs but the US forced them not to (FATCA).

“Neutrality” sounds simple, but I think it turns out to be nearly impossible.

Eschew flamebait. Avoid generic tangents. Omit internet tropes. Please don't post shallow dismissals Please don't use Hacker News for political or ideological battle. That tramples curiosity. and more

_newfound_

No it's a deep sense of betrayal from last time they picked a side.

The neutrality always was based on cowardice amd completelly fake.

They probably did not give away their military gear because the price or conditions they have envisioned were not right.

Make no mistake, Switzerland is right up there in the top 5 as far corrupt government and institutions go, they just have the better suits, camouflage and clandestinity.

Sure, life is good in Switzerland for most, the system is one of the best as far median income and level of wealth goes, but that did not fall from the sky.

This country had to ration food until not too recently, and before that, Russia had to save them from Napoleon.

As you write, you have no real clue about banking. Let me tell you, all that you wrote, and more, much more, can be said about every single big bank out there, anywhere.

How do I know this - I work for one of those, not (and never) CS. Since I started ours is rather spot clean from what I can see (but IT is very far from those who make similar decisions), what I see is regulatory downfall from their fuckups 15-30 years ago. Some of it was outright amoral criminal behavior, but most was due to bad processes and way too much incompetence in ie KYC checks. Too much focus on current cash flow, way too few questions about where the money came from. That's thing of the past in regulated markets (but then you have the whole universe of tax havens, some also in US or conveniently around)

Thanks for the inside perspective, very helpful. There's no doubt that corruption in banking was a complete free for all in the past during times of intense financial deregulation, and that regulated markets have improved their vigilance markedly since then. It makes sense that for banks such as yours, there might be a sort of echo of the past in scandals being outed presently. And a lot of those cases are more wilful ignorance and poor due diligence as you say

Of course CS is in a tax haven, and their dirty laundry generally seems much fresher and much more deliberate than negligent. E.g attempting to help cover up assets of Russian oligarchs under sanctions after the Russian invasion of Ukraine.

And the Credit Suisse leaks last year revealed just how much dirty money flows through the bank still to this day.

I am more than 100% confident that those controversies have nothing to do with the current mess. CS is failing not because it laundered cartel money, it is failing because it didn't manage risks properly, namely Archegos and Greensill. You guys make it sound like the universes punishes those who do bad things which is laughable.

They're both on the list too, and it seems based on a cursory glance that shady dealings were involved in both cases.

I was just confirming the notion that they're a very shady bank. I'm not qualified to say whether the shadyness is the primary cause of their downfall, but it doesn't seem outside the realm of possibility to me.

And sure, anyone can reduce any view down to a laughable caricature. Good job, I guess.

It's not exactly surprising that a company known for its extensive dealings with corrupt actors is also bad at managing risk.

>> Drug cartel money, strong ties to the Russian oligarchy, forex manipulation, corrupt dealings with African governments, destruction of records, tax fraud.

Sounds like HSBC

Precisely why HSBC bought UK SVB

They need to protect their laundering clients.

HSBC is an extension of the UK laundering fraud arm of Yee Olde Kingdom.

Expect much fuckery afoot.

And Deutsche Bank.

People have been calling them "Credit Sus" which I think is quite warranted.

The best quip I saw was some saying they'd changed their name from Credit Suisse to Debit Suisse.

Mmh, are you also describing the American goverment? Remember drug for guns?

nobody does corruption like the swiss (IOC, FIFA, etc)

You might also be thinking of HSBC [1] or Wachovia [2] or possibly one of several Australian banks [3] or maybe this European bank [4] or this one [5], or indeed Credit Suisse.

The thing to know about money laundering is that the rules are basically set by the USA, and after the 9/11 attacks the US made money laundering a strict liability crime. It means you can be found guilty of it even if you didn't know you were doing it, made extensive efforts to ensure you didn't and even if the actual violations were made by someone else not yourself. And money laundering is defined as moving money on the behalf of criminals, or not doing enough to realize you were doing so. How much is doing enough? That's subjective, up to the regulators and they are allowed to do things like tell you you're doing enough then later change their mind and prosecute you for it.

Because it's impossible to successfully comply with such a moving target, every large bank in the world is constantly being fined for AML violations. It doesn't mean much about any specific bank to say it's been fined for that. If it was possible to actually comply, there'd be no crime that involved any financial component any more i.e. no drug trade or fraud, because the banks would always detect it, suspend the accounts, report the owners and seize the money.

Clearly these crimes do still exist because banks don't have enough information to reliably beat all criminals. They don't have police powers, so the most they can do is rely on heuristics. It's especially tough in parts of the world where cartels may have unlimited budgets to beat your systems, corrupt your employees, corrupt government employees or threaten your staff with having their arms chopped off if they don't help out. AML regulations don't recognize these problems as legitimate however, meaning you as a banker can be prosecuted and jailed for up to 20 years because someone, somewhere else in your organization, wasn't suspicious enough about some activity and report it in a timely manner.

That's why it feels like banks are always "getting away with it". Governments, even the US government, can't actually enforce the laws as written because if they did then the entire financial industry would collapse overnight from mass staff exodus. This was the very real risk that led to HSBC being fined rather than directly prosecuting the staff. There was apparently a big fight inside the US Gov about this between the Justice Dept and the Treasury, with (I think) the former wanting prosecutions and the latter pushing for no prosecutions. The Treasury knew that prosecutions could succeed and if they did, there'd be a very different and much worse kind of bank run.

To me, it doesn't seem reasonable to expect bankers to achieve what the world's police forces and intelligence agencies never could. But the public doesn't really understand these dynamics. Whenever they read about banks laundering money, they think it's bankers who are knowingly taking part in organized crime and so demand punitive action. Governments can then blame the banks for crime whilst simultaneously taking some billions of dollars from them for the general budget. In the short term it's a win for them. The true cost is somewhat subtle and long term, in things like innocent people being unable to get bank accounts, or finding it very difficult, and a general feeling of society being rigged in favor of the bankers who never seem to be punished for their claimed crimes. The fix would be a mix of changes to AML rules and the PATRIOT Act, transforming the system into something a lot more mechanical and objective. It might make some crime a bit easier, but that can be counterbalanced by e.g. increased funding to the police.

[1] https://www.learnsignal.com/blog/hsbc-money-laundering/#:~:t....

[2] https://www.theguardian.com/world/2011/apr/03/us-bank-mexico...

[3] https://www.vice.com/en/article/g5bkyq/drug-cartels-used-aus...

[4] https://money.cnn.com/2018/02/08/news/rabobank-mexico-drug-m...

[5] https://www.newyorker.com/news/news-desk/the-fincen-files-sh...

Selective enforcement of broad regulations like this is one of the hallmarks of a corrupt regime.

The great thing about everybody being guilty is that they can use nudges and winks to force people to toe the line about anything at all, far in excess of the power and authority granted to them by laws on paper. Get uppity and they'll send some goons around to smash up the place.

This not a case of the hapless simpletons in government having a good heart and the right intentions, and yet again bungling the legislation spectacularly, and now they're dutifully serving the people by doing their gosh darndest to keep the financial system from collapsing due to their prior incompetence. These laws and regulations are constructed and implemented by and for the ruling class, for the purpose of increasing their wealth and power.

They are being used left and right. Want to penalize a European bank? Pull some some fine in the $x00 millions out of thin air. The way the laws are structured, it's almost guaranteed that they broke some law somehow. Don't like this dude/girl? Ban them from banking for no reason because your ToS allows you to and make it hell for them to recover their money.

Someone did it not too far ago in Canada.

Wow, this is the best comment I've read in a while. I was one of those ppl who thought that bankers were "getting away with it" but I can clearly see your point here.

Thanks for putting the time to answer.

You're welcome!

Thanks for this comment. This highlight the crux of the issue. Banks should have something like "banking neutrality" where they'll bank anyone and any money until a court order says otherwise.

It's funny most people accept this situation which can significantly abused by lots of parties (See: Operation Choke Point as an example). But if you live in a small village, and there is only one bank branch, the banker there not liking you means you being unbanked for no reason.

That was not my experience. I worked a lot with various banking regulators (Fed, OCC, NFA, British PRA, a bit of SEC, FDIC and probably a few I don't remember now), although not on AML matters. My experience was that before being slapped with a Consent Order, you get warnings. They are either Matters Requiring Attention (MRA) or Matters Requiring Immediate Attention (MRIA). It is highly improbable the regulators just hit you with something out of the blue, just because they feel like that.

My post is about AML specifically, not financial regulation in general.

Meanwhile KYC and AML makes lives of the average Joe much tougher - banks increasingly ask more documents every time, and more often. It will not stop real criminals anyway, as history shows.

A shocking idea would be to prosecute the source of the ill gotten gains, or the underlying crime, rather than imposing these AML externalities on other actors. After all, something is not money laundering if the funds were legitimate to begin with.

Alas prosecuting dictators and government officials in third-world countries doesn’t really happen, and the only way to prevent them stealing the nation’s wealth is to block the transfers

A modern principle of US justice is it's always someone else's fault.

> A shocking idea would be to prosecute the source of the ill gotten gains, or the underlying crime, rather than imposing these AML externalities on other actors.

Of course. But there's 2 big problems with that from a government's perspective.

1) Prosecuting actual criminals would require hard work: real investigation without having an automatic sneak peak into everybody's finances is hard.

2) This wouldn't give the government any extra power.

Your point about banks being forced to do what governments cannot is a stretch. Your comparing a thrird party (governments) to a first party (banks). Your drug dealer knows your an addict well before your parents do. Also as another poster said banks get warnings to respond.

You can miss me with this banks are the victim. It has been shown over and over and over from the dawn of Banking that no matter who you are if you have a lot of money there is a bank willing to work with you.

Whether banks should be allowed to do this is a different question but they are absolutely not victims.

> if you have a lot of money there is a bank willing to work with you

That's how people think it works but it's actually not the case, and one of the reasons why SVB ended in disaster. Read those threads and you'll see complaints that SVB was the only bank that "understood" startups, because they appear out of nowhere with millions of dollars. The word "understand" is euphemism for "startups trigger AML filters" because if you show up with lots of money from a single source, that looks like it might be corruption or drug dealing to the automated systems banks use. And then individual bankers aren't allowed to override the checks because they might become corrupt, and it's not just their lives on the chopping block if that happens, it's their bosses lives too.

SVB was built from the start to bank this sort of clientele, so their AML software was configured to allow it, but this led to a huge over-weighting of startups in their depositor base which then led to massive influxes and outflows of capital that they didn't manage properly. Other banks don't have quite the same sort of instability in their depositor base.

<< Governments, even the US government, can't actually enforce the laws as written because if they did then the entire financial industry would collapse overnight from mass staff exodus.

This.

Treasury recently had to send a note via remarks to indicate to banks that 'derisking' resulting defensive SAR filing may be overdoing it. Naturally, some regulators will question every instance SAR was not filed so the banks are in weird "punching bag" position.

While a lot of text written out, this is an extremely weak argument.

It boils down to "they can't do it perfectly so they shouldn't try at all".

And the exact opposite of defense in depth.

Tons of places people will cast a blind eye to things that they know are illegal if they can profit off it. Banking is absolutely one of those areas where there are huge incentives to do so, as it requires no effort and is easy to profit off of criminality.

This law says we're not going to allow you to be part of the broader global system while knowingly profiting off of criminality. Yes you may not catch 100% of it, but you sure have to thoroughly try to eliminate it. And there will be financial punishments to ensure you're not doing it just in name only.

This is exactly what we want in our financial system.

I really don't understand the motivation behind your post. "Let's eliminate a great law for crime prevention because it doesn't prevent 100% of crime?" That makes no sense.

> "Let's eliminate a great law for crime prevention because it doesn't prevent 100% of crime?" That makes no sense.

It makes no sense because that's not what my post says. In the final paragraph it advocates for a reform of AML law, not total abolition.

> This law says we're not going to allow you to be part of the broader global system while knowingly profiting off of criminality

No it doesn't, please read my post again. Your statement would be correct if you deleted the word "knowingly". AML laws can jail bankers if they provide services to criminals, even if they didn't know of their criminal nature and even if they did actually make extensive efforts to "know their customer". In fact it can jail them even if there was no actual crime happening at all, simply for procedural reporting failures.

I think the question is whether there's any evidence these laws have mitigated or prevented anything.

After 20 years there should be a vast body of evidence to justify the second, third, and fourth order effects these pernicious laws have had on society. Rather than looking at the facts, we keep pointing to nonsense perpetuating the existence of a self-licking ice cream cone. It's easier to put your head in the sand and ignore or downplay legitimate grievances when the rules you impose on everyone (and enforced at gunpoint) objectively has zero positive outcomes and a litany of negative outcomes.

I'm sure the TSA confiscated a lot of leatherman multi-tools at the airport, but that isn't a benchmark for their success. Take a guess how many terror plots have been foiled by the FBI/DHS/TSA versus random people over the same time span -- or how many caught by random people were already a person of interest by FBI/DHS/TSA.

Former banker here, familiar with Swiss practices.

They have done so much more bad things, things not mentioned in this thread.

And after the US intervened, they carried on with the same, just even more sophisticated.

How Swiss banking has a good name should be beyond anyone. Assume it is all careful, decade long marketing and PR stuff.

I in details know about some internal things regarding employee conduct which is Holywood material worthy.

Did the US intervene because the Swiss were taking much of the cartel laundering market away from their institutions?

Banks don't have a good name, it's not just the Swiss. I mean they have a good name among the corrupt and the rich who love their help laundering money, skirting laws, and socializing their losses. Among the common person, regard for banks probably sits somewhere between politician and lawyer.

Do not worry about the Swiss, they know to launder money even without american clientele. They have many buddies in Liechtenstein with odd funds, charities never yet seen in the so called leaks.

The historic reasons for the us taking a at the swiss have been the hidden, non declared tax moneys from american people and corporations. The Swiss had a cloaking system in place called banking secrecy, it was even codified into law.

America wanted whats owed to them and that was it.

Swiss bankers would fly to the us physically, in person, pick up funds and goods like diamonds and transport them to switzerland without declaring anything. All the little tricks like labelling the funds fraudulently, diamonds in a toothpaste tube, that was part of the service portfolio.

The us promised to sue and the whole decisionmakers knew they will be safe nowehere but in switzerland, a small country with sub par weather, and if the us got hold of them, they will spend a good time of their lifes behind bars. The swiss banking secrecy laws were thus burried for good. The swiss still had the cheek to blather about data protection and privacy and then agreed to hand over a portfolio of "suspicious" accounts.

How hypocritical this was was shown later on, when it became impossible in switzerland and europe for americans to open bank accounts unless employed in Switzerland and being residents.

You say banks have a bad reputation overall, but somehow the swiss banks had a better reputation, even though they are on a level with a carribean tax haven operator.

https://en.wikipedia.org/wiki/Swiss_National_Bank#World_War_...

During world war II the swiss national bank took all of the gold looted by the nazis - these were astronomical sums, it's really a shameful chapter of their history which is not widely known.

In addition to turning back Jewish refugees at the border. Also the swiss government even requested the nazis to mark the passports of Jews, so that they could be better turned down at the border.

https://www.yadvashem.org/odot_pdf/microsoft%20word%20-%2060...

Also there was a big court case during the nineties, because credit suisse withheld the money of holocaust victims, while at the same time former nazi officials had no problems with their accounts - all at the same bank.

https://en.wikipedia.org/wiki/World_Jewish_Congress_lawsuit_...

https://www.ft.com/content/f80088e4-5f0d-11ea-8033-fa40a0d65...

I don't want to interrupt your strange missive against the Swiss but they took Jewish refugees during WWII and it provoked Germany. Hitler called Switzerland "the mortal enemy of the Third Reich" and while, yes, their banks took their money, so did US banks like Chase.

Yeah. they're right up there with JP Morgan Chase and Deutsche Bank: https://www.thestreet.com/investing/jpmorgan-jpm-deutsche-ba...

> Isn't Credit Suisse the bank that laundered and legitimized all the money from the drug cartels?

No. I mean, some, sure, but “all”? Nah, Wachovia [0], HSBC [1], and, well, pick a major bank, really...

[0] https://www.theguardian.com/world/2011/apr/03/us-bank-mexico...

[1] https://www.investopedia.com/stock-analysis/2013/investing-n...

The entire financial system is built on fraudulent activity. HSBC started by laundering money for opium drug dealers into China, regular scandals, revolving door regulators, etc. The biggest surprise is how the system has not collapsed yet. It would not surprise me if the can is kicked further down the road after some people get a hair cut. It would also not surprise me if the multi polar world goes back to commodity backed currencies...e.g. gold & oil.

Well yes, but so did HSBC, Barclays and presumably all the other banks. So, reasons to be cheerful.

If anything it’s the opposite issue that could be the nail in the coffin - wealthy Chinese are pulling their money out after Switzerland decided to adopt sanctions against Russians.

I think lately it was more HSBC who laundered money for cartels.

I thought that was HSBC. Turns out it's both. Probably all of them.

https://news.ycombinator.com/item?id=35166892#35176836

my comment here on switzerland during the second world war. these are really more than a bunch of atrocities, if you ask me.

That was also Wells Fargo.

Not stating an opinion but isn't that more of an issue with countries that choose to do business with Switzerland?

Swiss banking privacy and their grey/black practices are sovereign decisions they have every right to make but it appears that countries are willing to turn a blind eye to it. We could wax on about morality but the real issue here is it's tolerated by the rest of the world so they have little pressure to change.

Switzerland doesn't have any unusual banking privacy laws anymore, those were abolished a long time ago. The US imposes crippling sanctions on any country that doesn't implement the same financial crime / tax information laws as themselves, so Switzerland came into compliance with US policy on that.

Yes. [0] [1]

Alongside all the other banks that allowed trillions of dollars worth of illicit and laundered funds to criminals, drug cartels, etc. Unquestioned.

Seems like the crime on the banking networks pays more than the fines, since both the banks and the regulators get a profit either way helping process transactions from criminals.

[0] https://www.buzzfeednews.com/article/jasonleopold/fincen-fil...

[1] https://www.nytimes.com/2020/09/20/business/fincen-banks-sus...

Swiss National Bank says they'll cover CS. https://www.semafor.com/article/03/15/2023/credit-suisse-ban...

But CS says firmly that they don't need government aid. Are they possibly too entrenched with Russian and drug money that they just can't open their books to the swiss government?

LoL if you think the Swiss government cares.

SNB, the bank that reported a loss of 100+ Billion last year

This comes after news that there were "material weaknesses" found in their financial reporting the last few years. They also failed to "design and maintain an effective risk assessment process to identify and analyze the risk of material misstatements". Finishing it off with massive outflows of customer funds - larger than anticipated - which has "exacerbated and may continue to exacerbate liquidity risk". Will they survive?

(source: https://www.cnbc.com/2023/03/14/credit-suisse-finds-material...)

Any predictions on if they'll just let this bank implode naturally?

I feel like we are close on the verge of a event that sets off the recession. It feels like the banking sector is going to be the fuse again.

Not a chance of a natural implosion. CS is one of a very small number of globally systemically important banks.

CS stopped being globally systemically important a decade ago. More and more so by selling off pieces of the bank the past few years

Wikipedia disagrees with you. CS is listed among 30 global systemically important banks. https://en.wikipedia.org/wiki/List_of_systemically_important...

>CS stopped being globally systemically important a decade ago.

I don't know if you've looked at the market this morning, but it disagrees with you.

They are a bit less important than they once were in terms of volume, but they are still massively interconnected with the rest of the system. There is zero chance they‘re just left to implode without governments and central banks stepping in.

They've dropped in the rankings but still have over $1T AUM. Far bigger than SVB.

Princeton University Professor of Economics Alan Blinder said literally the opposite on Bloomberg today.

We are all globally systemic. We are the world. We are the children

I think a relevant question is who is "they" in this case. We've talked endlessly about the US Treasury and the Fed, but CS is based in Switzerland. A country with a long and storied history of banking independence. The US and EU aren't going to stand by and do nothing since our businesses likely have major exposure but one would hope the Swiss would deal with this appropriately.

CS operates in 50+ countries. All the largest entities have resolution/winddown plans agreed with their regulators. In reality they probably won’t be used because the SNB and Fed will fear contagion.

The resolution process is outlined by FINMA, this was all defined after 2008 and the bailout of UBS: https://www.finma.ch/en/enforcement/recovery-and-resolution/...

I hope the Swiss will let it fail. That's appropriate.

Swiss govt is signaling they will backstop it. https://www.ft.com/content/0324c5a6-cecd-4fb3-85b3-7cdc99a33...

No, the taxpayers will foot the bill. Can’t have bank CEOs missing out on their hundred million dollar compensation, that would ruin the system! It’ll just be 2008 all over again - the people who screwed up will be rewarded, everyone else will be punished.

That's what the newscycle and everyone else is spinning it as. So, most likely it's just a slow moving crash that we're witnessing but it already happened.

Someone on HN mentioned yesterday that CS is being priced in at a 10% chance of failing in the CDS market. I wonder how much this increases after this news.

https://news.ycombinator.com/item?id=35152175

Close to 40% https://twitter.com/Schuldensuehner/status/16359445610747453...

I think it is more like chance of rain ie: 100% chance of 40% of CS failing

All will fail eventually.

Right now you can buy the whole company for $10bn. Seems cheap. Their building on Madison square Park in NYC is probably worth a $1bn

Folks need to understand the difference between market cap and enterprise value. To buy a company, you don't only have to buy the shares of stock, you also have to assume all their liabilities.

True, liabilities should be less than assets. But that's why banks are freaking out in the first place.

One of the things that made it harder to convince other banks to buy SVB is the memory of 2008 when banks who bought other banks inherited all their liabilities and lawsuits.

> Why isn’t Dimon buying S.V.B.? He has complained about the headaches of buying Bear Stearns and Washington Mutual at the government’s behest in 2008, having spent years fighting litigation and paying fines for those firms’ bad behavior. Bank executives who were around back then remember that.

https://marginalrevolution.com/marginalrevolution/2023/03/se...

It's good to want banks to be punished for causing problems, but if that punishment also applies to people who try to rescue the bank, then nobody is going to try to solve the problems.

> One of the things that made it harder to convince other banks to buy SVB is the memory of 2008 when banks who bought other banks inherited all their liabilities and lawsuits.

Also, no Hank Paulson there with a shotgun to get the job done this time.

If you purchase all of a company's stock, assuming that confers you 100% of voting rights, then you do "own" the company by most definitions, and certainly by the definitions that creditors would use when they demand their money back from your liabilities. In practice, once you own all those shares, you control the board of directors and can vote on how to handle liabilities, for example by using mechanisms like leveraged buyouts to (legally) shift liabilities to a new entity.

The trouble is that to purchase 100% of shares of a company, someone has to sell those shares to you. Just because the stock tanks to $0.01 doesn't mean the board members will sell you all of their shares and voting rights. They don't have to accept your offer.

For the public company: you pretty much can just buy it, barring stuff such as poison pills or regulatory approvals.

Shifting liabilities to a new entity — some company tried that recently and the courts struck it down.

Ah, but you don't have to actually assume liabilities, you can only lose as much as the purchase price.. So buying a company with 10 billion in debt and 10 billion in cash for $1 isn't $1 overpriced. It is an opportunity to take a 10 billion bet with "heads I win, tails I walk away chuckling."

That’s not how it works. You assume the liabilities too.

Can you explain what you mean by “assume all their liabilities” in practical terms?

You want to buy Bob's Delicatessen, a business which makes a tidy profit with their storefront schlepping sandwiches to the local cube farm dwellers.

Bob's Deli has a number of on-going costs, like the lease for their storefront, contracts with suppliers to deliver goods, maybe a business loan from a local bank that got them going in the first place.

These are all liabilities that you, the new buyer, must take on. You can't just rule from on high and say these business deals were with the old Bob's Deli and go away with the purchase. An example of a purchaser (apparently/allegedly) trying to say that former liabilities no longer apply: Disney buying up Fox, or Lucasfilm, and saying they no longer have to pay royalties out to authors who wrote novelizations of films, or expanded universe properties[1]

[1]https://www.theverge.com/2020/11/19/21578621/disney-alan-dea...

A company exists, and it has a loan on a building that it uses.

It does nothing else, the building is worth $100m and the loan amount is $95m.

So the company is worth $5m (the difference) and you could buy it for about that much (ignore whatever the company might DO with the building).

But now the real estate market crashed, the building could only be sold for $80m, but the loan is still $95m. Now the company is worth -$15m. So you could buy it for a dollar, but you still have a building worth less than the loan on it.

They owe folks money. If you buy them, then you owe those folks that money. So you'll have to pay the purchase price, and then pay the company's debts.

Practically: CS may owe money, CS may get sued, CS still needs to pay suppliers and people...

Buy it sell the building immediately, transfer the money to one of your other companies, then file for bankruptcy.

/s in case anyone was wondering.

buy company

pilfer physical assets by selling them to companies you control

wait for company to go bankrupt anyway

You might make a great Hungarian politician...

Yeah but then you immediately own all their debt and liabilities. Which is why SVB UK was sold to HSBC for 1 pound because they were willing to take on all its debt.

I don't know about the rest of the world, but this "sold the business for £1" isn't uncommon in the UK: https://www.bbc.co.uk/news/business-44250900

That must be the steal of the century. Just sell all the chairs in their office and you 1000x your money

Has assets? Sure. Has liabilities?

Just buy their assets like Disney <https://www.newsweek.com/star-wars-writer-says-disney-refusi...>

Goog bought their manhattan building for 1BN

Credit Suisse was a real estate play all along. Was Neumann involved?

Wish I could have bought SVB for $10, their building in Palo Alto has to be worth at least half as much!

Or, as Matt Levine put it in his most recent newsletter (https://web.archive.org/web/20230314194552/https://www.bloom...): "Not now Credit Suisse!"

CS has been tethering on the brink of bankruptcy for a good while now -- interesting to see if this will finally push them over or not. The Swiss would not be amused for such a stalwart of the banking business to disappear, but...

Looks like archive.org has added an anti-bot wall, and poor old me on my iphone don’t qualify as human

Oh cool, was gonna mention the similar topic. As a rarity I'm viewing on a laptop right now and the anti-bot wall still doesn't process after holding. I believe this is Bloomberg specific feature as well - just wondering if others have the same problem on wayback but seems from my data points it'd be universal across devices. Thanks to the person below to post another link, will give that a shot

https://archive.ph/PABDC

Firefox reader mode bypassed the anti-bot wall for me.

Now there's a nice bit of irony .. archive.org doesn't respect robots.txt, is nearly impossible to block, but has an anti-bot wall?

If know the right people on the inside they'll scrub the archive for you.

https://web.archive.org/web/20230000000000*/https://twitter....

The anti-robot feature to me looks like Bloomberg's, not Archive's

Firefox reader mode to the rescue!

I was expecting a cliff in the chart but you can’t even see it. They’ve been consistently shedding value for a year now.

Way over a year, since 2008.

The investor may just not be able to inject more legally. There are limits.

That is actually the case. The Saudis claim "regulatory reasons" prevent them from taking a >10% stake.

I believe that is exactly what they are saying.

Most Swiss have written off this pile of garbage a long time ago. I also don't think anyone would give them a bailout. Scandal after scandal, they occur so frequently you aomost expect the next one to be in tomorrow's paper.

Swiss National Bank designates CS as systemically important:

QUOTE:

" Global systemically important banks:

- Credit Suisse

- UBS

There are only 2 banks in this category. Source: https://www.finma.ch/en/enforcement/recovery-and-resolution/...

Expect a bailout :-)

If the taxpayer is going to have to bailout CS then I will demand that CS becomes property of the state. I consider the SNB part of the state so if this is going to cost the SNB a large sum I will not be happy.

Also what were all the stress tests for and the new liquidity requirements that Swiss banks had to follow unlike SVB etc.?

Edit: According to the media the bank does not have any liquidity problem but a reputation problem. There has been so much bad news in the last few years that people just don't trust CS. However according to the FINMA the bank is stable and worst case they would get liquidity from the SNB.

The regulators are considering possibly splitting off the Swiss part of CS and some other scenarios.

With what money?

An entire year's worth of Swiss tax revenue couldn't cover this bailout...

UBS got bailed out in 2008, the state even made a hefty profit from it.

you can just print money, no need to have any revenue as a state. States are run different than a household

They could start selling ammo again?

https://www.nytimes.com/2023/03/12/world/europe/swiss-neutra...

The problem with all these banks disappearing is that there are continuously fewer and fewer choices left. Eventually there will be a handful of megabanks and nothing else. I guess this is happening in every industry these days.

I feel like we're missing a key part of banking infrastructure: somewhere to just park cash.

Start-ups who raise a Series A aren't looking to earn 1% on it - it seems silly that they can't really do anything with it that doesn't take on risk, and that FDIC insurance for just storing cash only goes up to a low amount.

Sure, in the old days when money was physical and there were costs involved in storing it and transporting it that makes sense. But these days, I feel like I'd like to just be able to have an account straight at the Federal Reserve or something, which doesn't earn any interest, but lets me keep my cash sitting there without any risk of a run or anything like that.

But generally, I don't think I really need a bank. I want somewhere to temporarily store any amount of cash (Federal Reserve), and somewhere else that I can invest what I want, if I'm looking for a return, with some risk, on my money. Neither of those are really roles of a bank, right?

There are a few full-reserve banks, (as opposed to fractional reserve banks), where your money is not gambled with at all, but nobody uses them because nobody wants to pay money to have a bank account.

There are Massachusetts banks insured by the DIF (the inspiration for the FDIC) that has insurance for deposits over 250k, but at that point you're kind of putting more faith in the state of Massachusetts than the U.S. government.

> Start-ups who raise a Series A aren't looking to earn 1% on it - it seems silly that they can't really do anything with it that doesn't take on risk, and that FDIC insurance for just storing cash only goes up to a low amount.

If this is what they're looking for, they should probably just be banking with a SIB [1]. Wells Fargo and Bank of America might pay laughably low interest rates on their accounts, and deposits might technically only be insured up to 250k, but the U.S. government cannot and will not let these banks fail under any circumstances because they would drag the entire U.S. economy down with them.

[1] https://en.wikipedia.org/wiki/List_of_systemically_important...

The government doesn't want you to "just park cash" because it makes monetary policy difficult and loans more expensive. Predictable and cheap credit is an necessary part of a functioning modern economy so the Fed incentivizes(forces) banks to use deposits to make loans.

Don’t read this: https://www.chicagobooth.edu/review/safest-bank-fed-wont-san...

It will make you angry.

Custodia in Wyoming has been going through this same thing, recently. They tried to start a 100% reserve bank. The Fed has been ignoring their application for a Master Account for two or three years, until just recently, they were told on the side to withdraw the application or it would be formally denied.

Then, according to the CEO of the bank, the Fed leaked to the press.

Great read. What conclusions should we draw? What should we do, if "money is no longer money"?

It seems like most normal people operate as though money... is money. What should change in the way most normal people do what they do with... whatever it's called now?

Many banks offer "money market" accounts, wouldn't it be similar?

https://en.wikipedia.org/wiki/Money_market_account

Sure they can. You cycle it through very short term treasuries - weekly buys of 4 week t-bills if you really want to be conservative about your cash availability. And if even that is too spicy for you, buy shorter-out t-bills on the market to keep your average maturity lower.

(This mirrors some of the primary strategies used by money market funds, but a startup is in a better position because they can probably accurately forecast their cash needs a week or a month out.)

That is not what they are asking for. Investing in t-bills either requires an account with Treasury direct, or some other brokerage. If you manage the t-bills yourself, then you have to manually initiate the transfers, which has risk of both human error (if you forget to transfer, or input the wrong amount) and counter-party risk (if the brokerage fails, you may not have access to your funds for a while). And for many companies the day-to-day operations require more than $250k in an account just to be able to clear payroll and invoices, so even if they put their reserves in t-bills, their primary account is still at risk.

Small startups and business can easily end up with cash in the multi-millions. We are talking about companies with a handful of employees, too small to warrant a full time financial focused position. As the OP mentioned, there is zero reasons we can't have a zero risk depositor account. And I think most folks would be happy to pay a small fee for the service, but fees should not be necessary as the provider can still get overnight rates. But the only reason we don't have one right now is because the government doesn't want to interfere with the banks ability to make money off of our deposits.

EDIT: For some extra context, I know someone that had a swap account at SVB. In theory they were protected, but they still lost access to their funds for multiple days, which can be very problematic for a business. And on top of that it wasn't (and still isn't) clear how one would recover swap accounts, so they spent the weekend reaching out to lawyers. At this point they have probably spent a week of time sorting this mess out. They are a small biotech focused on finding cures for diseases and have zero interest/resources for financial engineering. And for companies that typically only have 1-2 years of runway, loosing a week of productivity is a huge distraction.

I don't think this is missing at all. It's literally just what a bank does. Historically, a bog standard, straight-up boring old school bank. No fancy investment banking, no crazy growth strategy, no risky lending to maximize returns, no emperor's-new-clothes financial fashion tricks that we must do now because everyone else does them.

I worked for many years at a bank that did just that. We happened to be able to offer significantly lower deposit rates than our competition, because we had very low exposure to the kind of banking that risks government takeover due to surprising repricing events.

Wealthy customers too lazy or otherwise unable to spread deposits around to stay below the deposit guarantees chose us to an overwhelming degree, in spite of competition that offered better rates.

Granted, it's in Europe. Don't know if there's stuff in the US environment that makes this harder.

Our HOA’s noname bank has a cash deposit sweep where they automatically loadbalance reserve cash between many banks so it stays under fdic limit. Done that for years. But what do i know I’m just an hoa board member not a unicorn startup cfo ¯\_(ツ)_/¯

It's a lot easier to split $1M between four banks than to split $300M between 1200.

Side note: what HOA needs more than $250K in reserves? I'm all for a rainy day fund but I'd be asking for a reduction in dues...

You sure about that?

If you have an account with noname for $3,000k and noname has 12 accounts with localcorp1-localcorp12 each of $250k -- and noname goes poof, what happens?

I think, according to the preSVB rules, you get $250k from FDIC and then get a very strong claim to $2,750k from the rest of noname's assets (if no BigBank steps in to buy the part of noname you're connected to).

https://www.fdic.gov/consumers/banking/facts/priority.html

You'll (probably) get your money back, but after how much time?

SVB offered a sweep account. Turns out it does not cover the lawyer fees that one will incur when trying to figure out how to recover those accounts. Maybe your HOA should hire a CFO ¯\_(ツ)_/¯

This is actually what CDBC proposals are about, at least originally. The idea is that by making the computing infrastructure of the central bank scale up and out, companies and even individuals can directly hold and transfer "hard money" i.e. money directly issued by the central bank, without needing an intermediary bank.

When I was last tangentially involved in such projects it was quite unclear how they thought this would interact with monetary policy. Narrow banks could easily be created today without any new IT systems, but generally, governments are unwilling to do what it takes to enable them for political and financial reasons. At some level it's another obfuscated way of raising revenue without explicitly raising taxes: they force people to deposit money in banks, force banks to lend those deposits to "low risk" counterparties like themselves giving them more money to spend on vote-winning policies, then if the banks go under they either print the money to bail them out (taxation via inflation), or force banks to charge the depositors (taxation with the banks as collectors), thus hiding the true nature of what's happening.

To get banks with zero risk deposits is therefore not really an infrastructure problem - banks could easily just park cash with the CB and then charge fees for administration of things like the websites, the branches and so on. The problem is to convince governments to reduce their spending levels to the point where they can eliminate the rules forcing banks to loan them money, which in turn would allow narrow banks/accounts to appear, and that in turn would allow them to start removing the guarantee on deposits. In such a system people who wanted ROI would have to explicitly move some deposits into funds that expose the liquidity risks and requirements, and which can be left to collapse without a bailout if they make big losses.

Unfortunately governments are currently stuck in a local minima. Although everyone can see that bank runs are bad, and that they're also easy to eliminate, doing so would require people to believe that the government will not bail out depositors at a fractional reserve bank if there's a run. For as long as people suspect the government's commitment to the policy is weak, the winning move is to keep banking with a fractional reserve bank and pocket the zero-risk interest yields. The suckers who put their money in a safer place will end up poorer than those who put their money into a bank that later collapses.

The better bet in your case is a Credit Union. Something local and not very large.

They're smaller organizations with far less overhead and no stupid fees for every little thing.

Perfect for just storing money if that's all you need.

You should probably read patio11’s The Alchemy of Deposits - https://www.bitsaboutmoney.com/archive/the-alchemy-of-deposi...

Any bank that tries that would have to charge a fee to cover costs and will quickly lose business to the other “banks” that don’t do that.

The fundamental lie here is allowing banks to tell you you have “cash” deposited and “available” with them. If the online app showed the truth - how your $10k you deposited turned into some shares in mortgage backed securities or whatnot, the alternative “just pay to park some cash” might be able to survive.

I have the same pet peeve about Amazon being able to tell you that you “buy” a Kindle book instead of buying a revocable license to read it temporarily.

It’s all false advertising really and it’s eroding competition and consumer trust.

It’s not a lie.

Certainly for up to $250,000 deposited at an FDIC insured institution, it is absolutely true that you can assume that you have cash deposited and available. If at any time the bank gets itself into a position where they can’t make good on that, FDIC will fix it so you still have your cash.

That is precisely the mechanism that the federal Government makes available that gives you a place to park your cash.

> Any bank that tries that would have to charge a fee to cover costs and will quickly lose business to the other “banks” that don’t do that.

There is this saying that if you are not paying for it you are the product. Curious that people only apply it for search and email services.

>The fundamental lie here is allowing banks to tell you you have “cash” deposited and “available” with them. If the online app showed the truth - how your $10k you deposited turned into some shares in mortgage backed securities or whatnot, the alternative “just pay to park some cash” might be able to survive.

That's basically what bond mutual funds are (including money market mutual funds, which closely simulate savings accounts via $1 share price), and they seem to have a market.

The operations fee required for that company posited to have just raised its series A to park its fat stacks of cash is going to be negligible (as it should be constant for any size of account).

The Federal Reserve doesn’t want to be in the business of managing all the infrastructure of payments.

Banks offer a deposit product that lets you do useful things like ‘get your salary paid directly into your account from your employer’s account’, and ‘use a debit card to authorize transferring a couple of bucks to Starbucks’s account’.

> The Federal Reserve doesn’t want to be in the business of managing all the infrastructure of payments.

I mean they're trying to work with it: https://www.federalreserve.gov/paymentsystems/fednow_about.h...

> Sure, in the old days when money was physical and there were costs involved in storing it and transporting it that makes sense.

???

This never stopped being the case.

Banks receive deposits and make loans. They are core pieces of modern banking. They play a role in increasing the monetary supply through debt servicing.

Banks make money from loans. A bank that didn't make loans would have to make money from deposits by charging a large fee to its depositors, and compete for deposits with other banks that don't charge a fee.

For most of us, a bank is a place to just park cash. Most people are well under the $250k insurance. It seems the government is willing to cover depositors above that amount now too (SVB).

What if the federal reserve goes down? Or just that US dollar goes down in value.

Even if you only do business within the US, exchange risk is baked into your supply chain and inflation.

> I feel like we're missing a key part of banking infrastructure: somewhere to just park cash.

We're going to need a bigger mattress...

Corporate consolidation has been going strong since the late 90s/early 2000s, at least in my lifetime I saw the dwindling number of actual independent companies, the vast majority of big companies I was a customer during my lifetime have coalesced into some large conglomerate-ish... And in multiple countries, it really feels it's happening everywhere, even though seems more prominent in the USA.

This is a natural consequence of markets (and proof that economies of scale work). On a long enough timeline, they trend towards consolidation. This is why constant government intervention is necessary, to break up monopolies and restore competition. A government that refuses to engage in trust-busting is broken.

Banking as well as food industry. Almost all of food industry seems to be captured by a couple of mega conglomerates.

With time they'll all fusion into one mega-corp.

But what is the competitive advantage to be had between a regional bank and a megabank? I kind of love my megabank(and there are quite a few megabanks too). I can expect a branch to be in a foreign country, it provides a pretty great mobile user experience, it is well capitalized, the in person customer service has been great as well.

Is it that less competition allows for companies like Wells Fargo to take advantage of their customers on a large scale? Is it that regional ones can provide fewer fees?

As someone that lives in a rural community, the national mega bank wouldn’t offer me a mortgage because they didn’t understand the local market, whereas the regional bank was the one most people living here got their mortgages from.

Particularly business loans.

Examples: (1) One reason SVB did well is it understood startups. If your startup just raised a large round and needed a small loan, you were more than good for the money, but most banks would scoff because your business didn't have a long record of profits. (2) The "simple" thing of having a no-fee, no-minimum checking account with a convenient ATM you can use without fees is something we can take for granted in larger metro ares; in many places your local regional bank may be your only choice.

The one I hear about the most is service. Large, do-it-all banks don't have a lot of motivation to care about you and your $100,000 bank account & half-a-million mortgage. They've got corporate accounts to service against which yours is a mere rounding error. A smaller local bank will find you to be big, valuable customer to keep around.

This is a general economic principle. To put it into an HN context, this is why Google, Amazon, Facebook, Microsoft, and such aren't the only tech companies. When they sit down to spend a dollar, they do an analysis and put it into the place that will make $1.60 (tech companies still have absurd return ratios compared to the rest of the world even after the last year). It doesn't make any sense for them to put it where they will make $1.30. It doesn't matter how big they get or how much money they have, that analysis always holds true.

This is why Google shuts down so many things. Even being profitable isn't enough for them, it has to be wildly profitable and at scale to compete with "making ads better". It is also why it is perfectly rational to be distrustful of anything Google puts out and fear it being shut down. It is not a transient corporate culture thing, it is a systemic issue with where their profit comes from. And yet it is rational for them to float out various things as probes to see if there's some huge profit for them to tap into, even as total long shots.

Meanwhile, other smaller companies can happily survive and thrive on that $1 -> $1.30 return, and then themselves be too big to worry about a $1->$1.13 that a startup may thrive on.

There are some other reasons why One Big Company isn't actually a practical outcome, but this is one of them, and the one relevant to this discussion. It applies to tech companies. It applies to the retail industry; this is why Wal-Mart and the fancy boutique downtown import shop can still coexist, even today. It applies to the auto industry, which is why your local auto dealer may service a local business' 10-car fleet but there will be another company servicing huge fleets. And it applies to banks.

This does not mean a large bank is obligated to be negligent of you, it just mean that there's a pretty strong pressure that is hard for them to resist. Strong internal leadership may push the consumer branch to be friendly as a sort of advertising mechanism for the rest of their bank, because you never know what individual will be in charge of directing a large corporate account in the future. But they'll be vulnerable to the next MBA to come along and cut that cost and boost short term profits, and who will have moved up before the long term costs come in.

In the current system, a loan underwriting office can screw up and deny a loan, and it is no big deal. With one big bank, the same error means someone will never be able to buy a house/car/etc.

Also, not all banks offer all products. Many of the big megabanks product portfolios are missing fairly common financial instruments

Where are you banking?!?

Capitalism 101 explains that the consolidation of capital is necessary to maximize the capital extracted from customers. Basing our entire economy on a few average people handling the assets of billions is bound to go disastrously wrong. As we have seen cyclically for decades now. Does a bank exist that hasn’t knowingly laundered organized crime money, paid bribes, or otherwise engaged in substantial white collar crime? I cannot find one.

Credit unions are superior and their disparate ownership structure is a key reason why.

don't worry, just buy your Federal Reserve CBDC and keep up your social credit score so they don't unperson you with no recourse.

End game is the Fed tracking everything you do financially via their digital currency, this is almost classic Hegelian dialectic where you now have a manufactured crisis to get people begging for CBDC

CBDC will be easier to implement if we can kill all these pesky small and medium sized banks...

If you paid attention the last week or so there have been a lot of accounts here promoting the fed bank as a solution.

You are correct and I agree with your assessment for what it's worth. Dozens of banks collapsing has two outcomes. Centralization into TBTF banks or a fed bank. Given the desire to manipulate currency further with CBDC I would suspect the modern money "theorists" in congress are salivating.

In accounting; the Big 8 -> the Big 5 -> the Big 4. EY is looking a bit precarious as they seem to be the goto firm for fraudulent companies so we may end up with the Big 3.

Banking is an industry where it’s not difficult to break up.

(1) ensuring only $250k should ensure capital is spread

(2) the above hasn’t been happening, so people are moving to big banks because the government bails them out

(3) regulations are such that smaller banks have to go through an insane amount of work to get to a “big bank”. Basically the big players have a moat. They’ll get bigger because they control / design regulation. It helps consolidation. Smaller banks can’t enter

(4) it doesn’t help some (maybe all) of these big banks are also board members of the fed. For instance Jamie Dimon of JP Morgan [1] where they funnel support to their corporations

(5) to fix, there’s a lot of options. (a) Simple one is to limit the amount of assets a bank can hold. They currently only do that for the smaller banks (not the big ones) (b) audit the fed directed by congress (there’s a lot of inner dealing there) (c) create a graduated tax based on asset (as it increases systemic risk) (d) good old fashion anti-trust breakups

[1] https://www.newyorkfed.org/newsevents/news/aboutthefed/2010/...

This is a consequence of computers + internet. 2 ways in particular:

1. Large organisations become unwieldy - computers help track and tame that complexity.

2. Geographically distributed organisations have trouble communicating and can be outcompeted in a region by a company focussing on that region. The internet helps reduce the friction in communication.

Once both of these started getting adopted in the 90s and 00s, big companies became more competitive relative to smaller ones.

Pretty sure it's mostly a regulatory thing.

The East India Company was pretty big and operated globally. And they didn't even have electricity. Ditto the Catholic Church.

And the lack of antitrust enforcement in the last 40 years.

Monopolies and robber barons are hardly a new phenomenon. In fact, I've seen the term "robber baron" derided as an anachronism. I suppose oligarch or plutocrat are the modern terms. Nevertheless, economics 101 (literally I had to sit through this in freshman intro economics) will tell you about forces that drive businesses towards consolidation.

Is this an issue with specific types of banks?

In the US the variety of consumer banks seems very healthy. Granted I understand there are different types and things are different elsewhere.

Exactly, I still bank at BoA due to convenience and it being my longest open account but any bank service I need is first run by my Credit Union.

I’m sorta the opposite, I still use my out-of-town credit union. Best investment for my life: been getting $5 every year on my initial $5 share (got in as a child) for a few decades now.

Have a line of credit with a big bank that I don’t really use, but means there’s a bank everywhere I can walk into if I needed a large amount of cash or a bank draft, and I pay it off the same day.

I switched to all credit union now. Works great for me.

We do the exact same thing. BofA is a convenience for us, but our credit union is a safe haven with better rates, better service, and less risk.

https://www.fdic.gov/analysis/quarterly-banking-profile/qbp/... claims that there were 4,706 banks reporting to FDIC at the end of last year. If anything there are too many banks and too few big internet companies, given that you can fit the five that matter into one acronym.

I’m not sure it’s fair to compare regional banks to FAANG if that’s what you mean? There are plenty of “internet” companies that don’t fit into FAANG just as there are only a few mega banks on the scale of FAANG. Or I misunderstood?

Is that really true?

There are also new banks popping up here and there that grow very rapidly due to a more software/tech focus.

And there are smaller more specialized banks that have been doing well (in Switzerland). There is at least one very recognizable co-op bank here and another one with a focus on sustainability.

Matt Yglesias makes the case that the answer is more megabanks.

https://www.slowboring.com/p/america-needs-more-giant-banks

For the conspiratorially minded, this is a feature, not a bug. The theory is that the creation of the current central banking system was, in part, to wrest power from the growing influence of regional banks back to the megabanks.

It's not a theory nor is it a conspiracy insofar as it is lacking evidence. The collapse during the great depression was used to sell the fallibility of the small banks. Senator Aldrich took the bill written by the wealthiest bankers in America straight to congress to form the fed.

It's relatively well known in fact [0]. Once you realize that was the intention to begin with the structure of modern banking starts to make a lot of sense.

[0] https://www.federalreservehistory.org/essays/jekyll-island-c...

Credit Suisse is a top 50 bank while SVB doesnt even make the top 100. SVB dissapearing leads to a lack of choice. Credit Suisse may pose a genuine global systemic risk.

You can always buy crypto. :D

I've had enough malaria,'maybe its time to try ebola

Ownership, conversions, and transfers suck. To get similar utility out of crypto as banks one must sacrifice the decentralized features.

No way, crypto is a scam and Ponzi scheme! Totally unlike banks getting bailed out with taxpayer money and giving exec bonuses etc.

there was a time when the government had the guts to actually regulate and break things up.

capitalism works when there is competition, otherwise it's just an oligarchy with ever-worsening terms and conditions.

New ones will emerge (eventually)

Taco Bell.

That is the end goal, all things to be owned by a single person. They win capitalism.

Where do these massive outflows of customer funds go? Do these customers see the risk of collapse before everybody else and move the money to another bank, or.. ?

There are multiple places. For sure other banks. JPM and other “too-big-to-fail” banks received billions of dollars in deposit inflows over the last few days[0].

But for me personally, I’ve been moving cash to US Treasury bonds, and based on recent bond prices, so have others. Short term treasuries were nearing a 5.1% yield as of early last week, and now are below 5% due to demand.

Last fall, I moved cash to HYSA accounts for a higher yield, because my bank was still paying 0.05% interest, presumably because they were loaded with low-yield treasuries and mortgage-backed securities.

In general, a bank is not a great place to park tons of money, at least that’s what I’ve learned. I’m tired of getting screwed by them. What the media calls “faith in the banking system” I call getting bent over. Of course there are valid uses for banks, especially in business. But I’m done parking large amounts of cash there.

[0] https://www.reuters.com/business/finance/jpmorgan-other-big-...

How are you holding those bonds? Are you getting physical certificates and putting them in a safe/safety deposit box? If they're held electronically in a custody account at a bank that goes bust then I'm not sure you will be much better off.

Not the OP, but I assume they are holding them in TreasuryDirect.gov.

> How are you holding those bonds?

Can't bonds like these just be hold in custody at the bank, like stocks? They're property title no? Should my bank in the EU go bust, AFAIK, my stocks are mine. Isn't that the case for short-term US treasuries?

As for physical certificates, didn't the entire world move to digital certificates about 20 years ago? I remember my family having those old physical certificates where you'd cut some pieces of the paper out of them and then you'd go at the bank to get your dividends. And there wasn't much security: you stole these and they were literally yours, with nobody who could verify who they belonged to. These physical "bearer" certificates have been the plot of a great many movies but I think it's now (mostly?) a thing of the past?

That's a double whammy.

If you hold a large amount of cash in a low-yielding bank account, you not only get less yield but are also exposed to the possibility of bank failure (which is itself increased by the increase in treasury yields).

> Short term treasuries were nearing a 5.1% yield as of early last week, and now are below 5% due to demand.

How short term are we talking about?

The 4 week is yielding 4.5% as of the last auction. These rates are all annualized, by the way, so you aren't getting a 4.5% bonus after a week.

Short term duration is generally considered 1 year or under. The Treasury sells bills for 4, 8, 13, 17, 26, and 52 weeks.

Banks never were great for yield, only as a place to route all your payments through, and even that is done badly in the US system as compared to Faster Payments.

Good luck when Congress fails to agree on the debt ceiling issue in June, defaults on treasuries and government bonds become nearly worthless.

Most everything is eventually wrapped treasuries. If the US government defaults you have far bigger worries.

The situation you've described has never happened. Out of all the options, it is considered the safest. People forget that the dollar is backed by the ultimate currency - military force.

That scenario is a can of beans and hunting deer with my 30-06 kind of situation if it really gets that bad.

Why go for a hard default when they can soft default (as now), and nobody cares?

Yes republicans in Congress will try to force a crisis, no it won't actually mean government bonds become worthless.

If you're going to hold until maturity, I don't see how the debt ceiling affects you significantly (any more than it would affect the entire asset market). The treasury will pay you eventually, likely within days.

If you are holding 10 year treasuries and were planning on selling them on the secondary market in July, yeah that could be very bad.

You bank is likely more stable than your broker.

One could think of the outflows as natural. Fed policy was draining liquidity from the system, through QT and interest rate increases. In startup world, fundraising slowed and startups were burning through capital vis-à-vis bank withdraws.

Dubai perhaps? With all the sanctions in place there's very few places where oligarchs can safely store their money. https://www.cnbc.com/2022/04/27/credit-suisse-document-shred...

TLDR - Credit Suisse has been a sh*t show for over a decade. This has been coming for a while.

Credit Suisse is in investment banking and wealth management. It does not have a significant retail presence (EDIT - outside of Switzerland). Credit Suisse has also had a number of accounting, risk management, and other scandals over the last few years. They were bailed out late last year by a fund linked with Saudi Arabia who took a ~10% stake in the company. Today, they (the Saudi fund) refused to inject more capital and the shares have collapsed.

What? CS has a massive retail bank. It’s their most profitable division and has existed for 150+ years.

Wealth Management is not the same as retail banking.

"The Wealth Management division offers comprehensive wealth management and investment solutions and tailored financing and advisory services to ultra- high-net-worth (UHNW) and high- net-worth (HNW) individuals and external asset managers"

Reference: https://www.credit-suisse.com/about-us/en/our-company/struct...

How is that relevant? You said: "It does not have a significant retail presence." Meanwhile, CS does have a massive retail presence, in Switzerland, and has done for 150+ years.

Crédit Suisse has a major retail presence in Switzerland, at least.

Now it's being bailed out and the market is rallying.

Nothing to see here, more of the same. We can't seem to not bail out banks even when they're dumb-dumbs.

My guess would be that that SNB's backstop and liquidity assistance is a way to bail them out before the inevitable collapse. It may make the medicine go down easier, as CS's collapse looks likely. Upon their demise, SNB can then say "well, great thing we had that backstop, huh!" rather than needing to find the political capital to get a bailout through.

Just a guess.

So the market was expecting the investor to exceed their regulator limit? That doesn't make sense. What am I missing?

Or the majority of market participants were not aware of this limit.

The investor is basically an extension of the Saudi state, so it's not unthinkable that if they wanted to, there would be an exception made.

I suspect it has more to do with accounting standards. After a certain % ownership you need to consolidate the entity in your group, which from a regulatory capital point of view means consolidating all of the RWAs while not getting credit for all the capital in the entity.

...or another entity spun-up to make this investment.

It might be that it's not a forbidden limit but a limit with strings attached

DB is next. The math is just so bad there, and has been for a decade now, that it's inevitable.

Most of the business can't survive without tax payers money in one way or another.

Is there anything that China/Russia and friends can do to tip this whole thing over?

Many things. Many, many things. I have a pet theory that the primary thing that has been preventing the Ukraine conflict from expanding is precisely that all sides understand the economic gun pointed at all the participants, much moreso than the military situation. (I can't prove it and I won't even argue for it much; I'm calling it a "pet theory" after all. I don't even put a huge amount of stock in it myself.) The economic damage that could be done by each side is theoretically less than an all-out military assault, but in terms of cost/benefit, you get a somewhat similar result with a much smaller effort in the economic sphere right now.

It's a rather bizarre game theory situation. China in particular can easily trigger a huge crisis from what I can see. Selling off their treasuries more aggressively would do damage. They could also simply stop trading entirely unilaterally. Or both. And that's not even my complete list of things they could do to tip over the West as a whole.

However, it will hurt them as well. It becomes a super complicated analysis of the relative damage of the collapse, the probability that the current ruling classes can weather the damage, the assessment of the other side going nuclear, the true beliefs of the parties about relative military strength... I can tell you how the participants are publicly posturing and a certain amount of visible public jockeying on the issue (pay attention to the BRICS and their posturing and actions around non-dollar international currencies), but your guesses about the true internal beliefs of all the parties or the objectively real situation are as good as mine.

Note this is not unilateral. I think China's economy is dangerously precarious too, and the West could probably tip it over... but again, that would hurt the West as well, and all the previous paragraph applies in both directions.

(And note how I distinguish "posturing" vs. "actions" on the non-dollar currencies, because there are both things. And I also distinguish "internal beliefs" from "reality" because history shows that the two are often detached in decision maker's minds. One of the most dangerous situations for war historically is when at least one side's opinion is highly divergent from reality.)

>Selling off their treasuries more aggressively would do damage

Er, who's gonna buy them? Interest rates have risen significantly since they were issued so they would be selling at a big discount.

That's the damage; reducing demand even more. Remember that when the United States Treasury is selling their treasuries, they're selling into the same market. Crashing demand leaves the Treasury unable to raise money. And then the second-order effect of this in a derivative-riddled market causes its own havoc.

Part of the reason they don't fire this gun is precisely that they'd lose out on a lot of value. But then, what do they do if the US signals strongly that it is going to go ahead and inflate the currency sharply, meaning they're only going to get a de facto big discount anyhow?

And I don't mean that as a simple question, where I'm implying a certain answer I'm trying to convince you of. You have to game this out like a game of chess, where this cascades out into a huge decision tree. The tree has gotten complicated lately. Taking economic damage to deal your enemy a bigger economic blow is getting disturbingly close to a rational move lately, in cold global realpolitik terms. Would China be willing to bet they could roil the US in enough domestic chaos that US leadership would become uninterested in stopping their incursion into Taiwan, even if it meant taking a hit themselves? I'm not saying the answer is "yes". I'm saying "the answer is a lot more complicated than it was a decade ago".

The thing is that both China (during Mao's years) and Russia (during the shock therapy of the 1990s) have had to endure severe economic hardship, and even so, they didn't break. They won't break if the West decides to up the ante even more and if it decides to set up a total naval blockade against China, let's say.

On the other hand the most that the West had to endure when it comes to economic hardship since WW2 were a couple of really grim years in the late '40s, followed immediately after that by about three decades of sustained economic growth. Ideologically they're not set up for economic penury, neither their leaders, nor the Western populations themselves.

As such, this insistence that the West has on "let's hurt them (Russia and China) economically!" is in a fact a manifestation of its own insecurities.

A weak economy is less able to fund a strong military. If the country signals a desire to use their military for conquest, it seems relatively sound to sanction the country as a means to constrain it first and foremost. I don't think the primary goal need be anything more than "make military conquest more expensive" and e.g., less likely to succeed. It's not hard to imagine what Russia would be doing right now if its economy were 10x as strong as it is.

>both China (during Mao's years) and Russia (during the shock therapy of the 1990s) have had to endure severe economic hardship

Actually I would argue the exact opposite is true. Russia and China have never had it so good, why should they throw away all the hard earned advantages they've gained just because some 3rd term teddy bear president tells them to?

Globalization means that China of today and China under Mao are not necessarily the same, and can't be viewed through the same lens. The internet is a Big Deal in terms of providing an outside perspective to willing Chinese looking to see what life is like outside of the Great (Fire)Wall. That said, you can't apply a western perspective when understanding China and the Chinese viewpoint. I spent some time over there and was constantly surprised by how the Chinese viewed themselves and their government and the world, in contrast to how I viewed the same.

I bet a lot of Russian oligarch's/China's money is parked at Credit Suisse. They will be quiet as a mouse.

It's clear that Russia is getting more and more adversarial, the question is where is the line where money matters less than ensuing pure global chaos. New oligarchs and billionaires will be made in a new world.

Rapid dedollarization and announcing a new currency (e.g. BRICS currency?) Gold purchases suggest some countries are preparing for the post-dollar world.

That's being going on at least since 2008... Zerohedge's favorite topic.

Sure - invade Taiwan.

I would argue this could tip it the other way around, if peacetime allows for such loose monetary policy imagine what the wartime would allow for.

How does that impact the banking system? I mean I know it would in some ways, but whats are the actual dots being connected?

Maybe it will get recapitalized with the money confiscated from the Russian oligarchs, just like the Cypriot banks during the Eurozone Crisis.

So... move assets to Bitcoin or not?

Bitcoin has, thus far, marched pretty much in lock step with the stock market. There's little reason to think that's going to suddenly change.

If you bought when SVB announced problems last week you'd be up 25%

Sure, and if I'd played 03 10 24 46 63 04 in the PowerBall on Monday I'd be a millionaire. It's not a great long-term banking strategy, though.

The alleged promise of Bitcoin in various uses like an inflation hedge during economic turmoil have not borne fruit.

And if you bought bought regional banks at the bottom a few days ago you'd be up 500% on shares alone.

If you want to gamble, might as well buy real banks instead of fake banks anyway.

Why did you decide to do your comparison against that totally arbitrary point in time? Basically, anyone can play the game you're playing. Objectively, from its All Time High, BTC is down 70% - and has moved in lockstep with other over-valued meme stocks.

I can't even --

And if you bought a few days before that you'd be at 0%

Might not be the best place to ask. The commitment here to the legacy banking system is titanic.

I didn't realise the feature set of crypto currencies had superceeded that of banking systems.

Banking systems need on average 10-15 years to crumble under the weight of their own corruption. Crypto can do it in 4, which seems like a fairly dramatic improvement in efficiency.

Why would it need to?

Titanic…

An unfortunate metaphor. Judging from the first sentence I assume it’s pre-iceberg-Titanic we’re talking about.

It is funny that the knee jerk reaction to the FDIC guaranteeing all depositors at SVB is to panic and run to bitcoin.

I think the "run" to bitcoin can be mostly attributed to people bailing on stablecoins as there's no guarantee they can be converted to dollars. If your stablecoin can't be cashed, but can be converted to BTC, then BTC looks better by comparison.

What's the point of converting BTC to dollars anything? I thought bitcoin was the future. I mean you don't see a lot of people fretting that we can't convert dollars to Zimbabwe bucks. Why are crypto people so hung up on convertibility to the fiat dollar?

And the people who comment "BTC is up 30% since SVB" are making their argument centered around $USD value of BTC.

Whatever happened to "1 BTC = 1 BTC" do they not teach that to kids these days?

We're not yet at the point when crypto does look a lot safer than bank deposits. But we might get there soon.

In Canada, we most certainly are.

What? Canada had one of the safest banking systems in the world and didn’t need bailouts in 2008? Now crypto seems safer, why?

Chance that this is just part of a campaign to short CS? What makes CS different from other major global banks?

Of course not. Why would you put in your own money when you know taxpayer will...

That future expectation created is part of the price paid when you bail out entities.

Something I wonder is... With $1.3 trillion assets under management, is it safe to say that Crédit Suisse's situation has nothing to do with Bitcoin?

I'm asking because about 15 years after the last big financial crisis, one of the systemic bank risking default and potentially in need of a bail out reminds me of a headline from 2008:

"(The Times 03/Jan/2009) Chancellor on brink of second bailout for banks"

It isn't. Bitcoin isn't nearly big enough to cause systemic problems of banks, especially since most banks either don't have legal access to it, or because they don't see it as a valuable investment.

Please note that while Bitcoin is mostly built to counter central banking, it also heavily encroaches on the traditional yield generating business that banks serve to the people: storing wealth. With bitcoin, (excepting mining fees) you don't have to pay for storage or services. You don't run a counterparty risk, and you can keep a moderate level of privacy.

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