Risk comes from Switzerland and is called Credit Suisse.

To what extent is the hellish world of high finance filled with Melanocetus johnsonii, a cute little fish with sharp teeth and lantern-like antennae? What happens in the financial system that raises persistent doubts about its governance and transparency? Why are we always waiting for the next nightmare caused by the wrong treatment with a grief in our body? Did the regulation made after the 2008 crisis not work? We learned nowadays that, as a result of the fall of the SVB, the central bank, the US Federal Reserve, has taken more lax measures to control regional banks. As if the experience with savings banks in Europe was useless 15 years ago.

explanatory simplification

History has shown that since the beginning of time, economic crises begin with finance. Perico leaves Paquito money to keep in exchange for some interest. With this money from Perico, Paquito buys Marieta some of the bonds (debt) he has issued to expand his tomato garden. The first few years the tomato business is doing great, but one year a germ gets in and ruins the harvest. The money supply chain is disrupted, debt becomes more expensive, and defaults begin.. Catakrac if there are no good protections against risk.

This is a simplification that serves to explain that a change in landscape, always the product of an unexpected rise in interest rates that makes debt more expensive, can have very harmful effects. To reiterate: anyone who mishandles risk control, bets on a losing horse, or doesn’t set up the necessary firewalls, gets slapped. Depending on the size of the victim, confluence may be larger or smaller.

This stampede, which started to break out in the fall of 2007, almost took the global financial system with it in September 2008. Origin: the real estate bubble and the distribution of mortgage papers—debt—between institutions from half the world. The rise in interest rates broke the deck and the value of real estate assets that seemed to grow forever collapsed. Government intervention – debt issuance we still pay plus taxpayer money – bailing out banks in danger of bankruptcy prevented the worst. The system has been recovered.

After a phase where interest rates were zero or negative to face the pandemic, multimillion dollar debt issuances issued by central banks to prevent the economy from collapsing have rekindled inflation. The invasion of Ukraine did the rest. To combat this, Central banks raised rates, exposing the weakness of these financial institutions. They did not do their homework well. SVB is one of the cases. Credit Suisse is another.

The SVB effect, as far as we know – the banking world has black holes that even regulators can’t see – is limited to the credibility of some regional and specialized US banks. In Spain, for example, there is no example of a bank openly specializing in a sector that has exploded in recent years, such as start-ups.

More could affect the course of Credit Suisse. The Swiss entity has already announced it will split its investment business, the former First Boston, and the pools on its next acquisition by another entity – points to UBS – aren’t stopping growth. Will there be a domino effect or will it be contained?