If it weren’t so serious, there is an almost provocative lightness in the fate of the major Swiss bank Credit Suisse: How easy it was to sweep away one of the largest banks in the world – who would have thought it a few days ago? Despite all the scandals and losses, judging by their numbers, Credit Suisse was still rock solid. And yet, a few days of uncertainty, a clumsy interview in Saudi Arabia and a hectic weekend were enough to more or less wind up one of the world’s most important banks.
This raises many questions that can hardly be answered with certainty the day after. Above all, it says nothing good about the past 15 years. Only 15 years have passed since the last major financial crisis, in which banks had to be rescued from collapse with hundreds of billions of tax dollars in order to avoid a complete collapse of the global economy. 15 years in which managers, supervisors, central bankers and financial politicians all over the world actually wanted to work to ensure that a situation like this never arises again: that a large bank suddenly turns out to be so weak that, in a cloak and dagger operation, it state or at least with the active support of the state. “Never again” was a phrase that was used very often back then – and it didn’t last long.
It is quite possible that in a few years’ time historians will describe the collapse of Credit Suisse as one of the most expensive accidents in economic history. Because of its capital resources and its business model, the big bank could have continued to have a future. Rather, it was a string of homemade mistakes and unfortunate circumstances that eventually swept the bank away. In this respect, the question arises all the more as to how the bankruptcy of a US regional bank at the beginning of last week, which had not hedged its own investments against the risk of interest rate changes, was able to wipe out a colossus of the industry so quickly? And that question touches on two very fundamental misconceptions about banking regulation since the last major financial crisis in 2008.
The first misconception concerns the tighter regulatory rules for banks, the stricter capital requirements and transparency requirements. They were intended to create more security, and Credit Suisse mostly complied with them – but the bank’s numerous scandals (Greensill bankruptcy, Archegos) have already shown in recent years that even the strictest regulations do not create any real security. The stricter regulation has made the banks safer, but by no means safe – on the contrary: it has also created an illusion of security, which in turn made them particularly gullible. The belief in regulation was also a convenient reason for politicians not to have to deal with the financial sector any further.
Which leads to the second misconception that affects us all: That “never again” from the last financial crisis was always a form of self-deception. The outrage at the time about greedy and unscrupulous bankers was so great that it demanded retribution and justice. But ultimately, banking is not a place for retaliation. Banks serve a vital purpose for the economy, for businesses and for individuals. No one can seriously want or believe that a bank like Credit Suisse will simply close down and only the shareholders will be liable. No, such an uncontrolled bankruptcy would have such serious consequences for the financial sector and the real economy that a government bailout for this one bank, no matter how expensive, would seem comparatively cheap.
At best, yesterday’s intervention by the Swiss government will prevent a major contagion in the financial industry. Even then, this weekend should be an opportunity to take a fresh look at the banking sector and its regulation.
This article first appeared on Capital.de.
