Friday Links: Debit Suisse Needs a Bailout

Happy Friday! This week, piggybacking off of what happened last week, Silicon Valley Bank and Signature Bank both failed and saw their depositors get bailed out. Now, Credit Suisse (formally called Debit Suisse in our office) has a tiny crisis on their hands. Luckily, they got bailed out by the Swiss National Bank with a $54 billion line.

This is all directly tied to rising interest rates. When rates rose at a historic pace, it caused major losses on the banks' balance sheets. One of the only ways to fix that is to reduce rates. When the Fed reduces interest rates, the value of the bank’s bonds rise again, stimulating confidence in the banks once again.

But the ECB said they didn’t care and raised rates another 0.5%, citing that inflation is their sole target and the banking crisis is not out of control. Which is mostly true. Credit Suisse has had its fair share of issues in the past, but other European banks are in a stronger financial position. In the US, banks like JP Morgan Chase, Wells Fargo, Citi, and Bank of America are in strong financial positions (although they have large bond losses).

Smaller banks are the issue. They aren’t held to the same regulations as the largest banks. But that reality is likely going to change for them in the future.

Essentially, we operate in a two-tiered banking system.

Tier one banks are the systemically important banks. These are the "too big to fail" biggest banks. If you have money there, it's a true deposit. You can't lose it.

Tier two is everyone else, the regional/local banks. If you have money there, it's not a true deposit. It's an unsecured loan to that bank. You can lose uninsured deposits in a bank failure.

That is what is subject to change, but at the same time, Silicon Valley Bank calls itself the safest bank in the world because of what the FDIC did for depositors (protecting everything).

Anyways, here’s everything I read and wrote today.

Scale your financial life with Fjell Capital - get a dedicated team, 3 meetings a year, unlimited phone calls, texts, and emails, an annual progress report, meetings designed around our 29 foundations, and professional asset management.

Join the 900+ subscribers reading Running the Tape every week!

Thank you! Your submission has been received!

Oops! Something went wrong while submitting the form.

Connect with me on social media!