ALEX BRUMMER: Lifeboats launched as US banking crisis shows no sign of abating
Credit Suisse’s £45bn lifeline is a signal event. Swiss banking has an aura of mystery and solidity, and a rescue for one of the country’s once most respected moneylenders, with a legacy stretching back to 1856, was not intended.
The real question is whether it is part of an impending tsunami for European banking as storm clouds sweep across the Atlantic.
The US banking system is in turmoil. On the heels of the bankruptcy of Silicon Valley Bank (SVB) and Signature, and the bailout of depositors, a multibillion-dollar lifeboat for San Francisco’s First Republic is headed by heavyweights Bank of America, JP Morgan and Citigroup.
US woes: Hot on the heels of Silicon Valley Bank and Signature’s bankruptcy and depositor bailout, a multibillion-dollar lifeboat arrives for San Francisco’s First Republic
Amid speculation that instability in financial markets could lead central banks to pause the rise in borrowing costs, the European Central Bank (ECB) decided to ignore the turmoil and raise its policy rate by half a percentage point to 3 percent.
ECB President Christine Lagarde stressed that there is no trade-off between fighting inflation and financial tensions.
The cost of living needs to be addressed by raising rates and the ECB has other tools to deal with banking problems.
Credit Suisse has been fluctuating for months with huge outflows from its asset management arm.
Action by the Swiss National Bank was triggered by contamination from the US. The collapse of SVB and Signature, and the faltering at First Republic, have shaken confidence in lightly regulated regional banks and led to a frenzied fight for security.
Politicians and regulators are unwilling to express fears of a systemic failure. But JP Morgan’s celebrated chairman, Jamie Dimon, had no qualms about that.
He told Treasury and US Federal Reserve officials at a meeting a week ago that SVB had “potential” for disruption.
As the savior of Bear Stearns and later Washington Mutual in the great financial crisis, Dimon is considered a voice to be listened to. There is a pressure among UK officials to put some distance between what has happened in the US and Europe and the UK.
SVB’s UK arm could be sold to HSBC because Bank of England regulators, led by Sam Woods, ensured that the London operation was ring-fenced so that money deposited in London could not end up in the US.
There is a confidence that the storm can be weathered here because of robust regulation.
The Financial Conduct Authority is less certain. It has written to 291 fringe financial players offering bank-like services, such as money transfers, with an urgent demand that they fix governance weakness and money laundering or face closure.
In the US, regulatory standards for second-tier banks were relaxed after the crisis by the Trump administration with the support of senior Democrats and the Federal Reserve.
A ‘silent run’ on banks is what cannot be seen or heard. Queues outside Northern Rock branches in 2007 were real enough – but less recognized was consumer behavior being emulated by the bigger beasts in the money markets.
Larger British banks are no longer so dependent on short-term funding.
But the model of the challenger financial groups, some of which are still struggling to get a license, is very different. No one can turn down a flight to safety. The Bank of England may have a tight grip, but even the best regulators are struggling to stem the market tide.
Partners suffer
As John Lewis has reported a huge loss, charismatic chairwoman Sharon White is wary about the prospects.
Despite the loss of market share at Waitrose to Aldi and Lidl, customer numbers are rising.
Heavy investment in competing on price means shoppers can enjoy daily prizes on 300 food items. The Anyday range is proving popular.
White must continue with her ‘efficiency’ program. After removing £300 million in costs, another £600 million is coming. No doubt more partners will be thrown off.
The concern for John Lewis loyalists is that the much-loved choice and service will go out with the bathwater.
Control quiz
Here’s a quick question: What do Silicon Valley Bank, Signature, and First Republic have in common, other than tech clients and bankruptcy or near bankruptcy?
All are controlled by Big Four firm KPMG, veteran of previous crises at the UK’s Co-op Bank, Carillion and elsewhere.
Imagine!