This piece examines the turmoil surrounding a high-profile bank collapse in Silicon Valley and compares it to the long, storied crisis that engulfed Credit Suisse, a Swiss institution once deemed systemic. In 2022 Credit Suisse booked substantial losses of 7,400 million euros and saw its market value drop by 69 percent over the year, settling around 8,600 million. The share price fell from 16 Swiss francs, roughly 15 years ago, to about 2.13 francs. The bank signaled further losses ahead and announced 9,000 layoffs out of a workforce totaling 52,000. In the last quarter alone, deposits exceeded 111,000 million as clients withdrew funds. On March 14, it reported material weaknesses within its financial statements, a sign of insufficient rigor in risk control. The balance sheet appeared fragile, prompting many to question its durability. Analysts and observers offered cautious, sometimes stark, assessments.
What underlies the unsettling conduct of modern finance, where the imagery of sharp-toothed creatures and lantern-eyed fish seems oddly apt for describing hidden risks? How does the financial system generate persistent concerns about governance and transparency? And why does it feel like the industry is always on the cusp of another crisis stemming from inadequate risk handling? The responses to these questions remain relevant, especially in light of regulatory actions following the 2008 crisis. Recent developments suggest the U.S. Federal Reserve has eased some constraints on regional banks in the aftermath of the SVB situation, a move that has triggered renewed debate about the effectiveness of post-crisis reforms and the memory of European savings institutions from fifteen years ago.
Is the financial world still haunted by the metaphorical sharp-toothed agents that lurk in the system?
explanatory simplification
History shows that economic crises often begin in finance. Picture a small, everyday story: Perico lends Paquito money in exchange for interest. With that money, Paquito funds a venture for his friend Marieta, issuing debt to grow a modest operation. In the early years, the venture prospers, but one bad harvest or unforeseen trouble disrupts the flow of money. Debt becomes costlier, defaults rise, and risk protections are overwhelmed. Without solid risk management, a cascade can unfold, and the impact will depend on who bears the brunt of the losses.
This simplified narrative helps illustrate how shifts in interest rates can strain the financial landscape. A sudden rise makes debt service harder, and fragile risk controls crumble under pressure. The consequences can be severe, affecting lenders, borrowers, and the broader economy. When risk controls fail, or when bets are placed on unsustainable outcomes, the results can be costly for many players in the system.
The downturn that began in 2007 and culminated in September 2008 nearly pulled the global financial system into a deep crisis. The root causes lay in the housing market and the extensive distribution of mortgage-related debt among institutions worldwide. A rapid increase in interest rates exposed the weakness of asset values, especially real estate, and public authorities intervened with debt issuance and taxpayer-funded bailouts to shield the economy from a complete collapse. The system gradually recovered, though scars remained.
After a period when policy rates approached zero or turned negative to combat the pandemic, central banks issued multi-trillion-dollar debt to sustain activity. Those measures contributed to renewed inflation. The invasion of Ukraine added another headwind, and many central banks responded by raising rates. In this environment, some financial institutions showed vulnerabilities that demanded closer scrutiny. The SVB episode highlighted weaknesses in regional banks, while Credit Suisse faced its own set of challenges.
The broader question remains: what is the reach of a single bank’s problems into the wider financial world? The so-called SVB effect appears to threaten credibility in certain regional and specialized sectors in the United States. In other markets, such as Spain, there has been limited evidence of analogous scenarios, including banks with a strong focus on fast-growing industries like startups.
Looking ahead, the fate of Credit Suisse continues to attract attention. The bank has announced plans to separate its investment business, previously aligned with First Boston, and to manage the changes stemming from a potential merger with UBS. The outcome remains uncertain, with observers watching to see whether a broader domino effect emerges or if containment strategies prove effective.