The Global Banking System Is In Serious Jeopardy?
Credit Suisse, an integral bank tied closely to the global banking system, is facing serious financial hardships, that if not rectified could negatively impact the global banking system as a whole.
Many businesses are bracing for a recession after two American banks’ recent collapse over the last few weeks. In light of these closures, stocks tumbled this week as fear rages through the global banking system. The Dow Jones Industrial average decreased by 300 points in just one day, which is cause for concern.
Since the sudden collapse of Silicon Valley’s biggest lenders, Silicon Valley Bank and Signature Bank, the Federal government had to step in and take drastic measures to protect customer deposits from both bank institutions. The Justice Department has since opened a case to investigate what was the cause of the quick demise of Silicon Valley Bank.
While the American government is trying its best to ensure confidence in the global banking system, many people are apprehensive and hesitant about the future of American banking and the global economy. Unfortunately, not just Americans are worried about the American economy and the global banking system. Due to the collapse of two major US banks, the Swiss lender, Credit Suisse, has had a steep decline in share prices this week.
This institution once had big plans to become one of the biggest lenders in the world, but after a string of controversies and poor finances, it has led to a massive drop in customer interest. Last year the Swiss bank announced that they were going through a significant restructuring and was reducing its employees by 10,000 people.
Then, things went from bad to worse for Credit Swisse when its biggest shareholder, Saudi National Bank, would not increase their investment. They currently own a 10 percent stake in the troubled bank. While the bank is not collapsing just yet, its investors are nervous and fearful for its future.
If this Swiss bank were to fail, it would cause major problems across the global banking system as it is interconnected to many other international banking institutions. Many experts think that the Swiss government would step in and save the bank if it went under, but nothing is certain.
The Swiss National Bank has already given Credit Swisse a helping hand this week, which helped to bolster their stocks on the American stock market. They have announced that they will be borrowing up to 50 billion francs from Switzerland National Bank in an effort to save themselves.
This drop in share prices for Credit Swisse has had a knock-on effect across European banks, with stocks dropping broadly. Investors are starting to worry whether the global banking system is even stable.
Even the largest banks in America, like Goldman Sachs and J.P. Morgan, were not immune from the ripple effects, and their stocks dropped by 3 percent overnight. Of course, smaller banks were hit harder than any other institution, like First Republic Bank, whose stocks fell by a jaw-dropping 20 percent.
With the economy in jeopardy and the Federal reserve still unable to control inflation, the banks were next on the list to be hit by the terrible economic climate we are living in at the moment.