16 March 2023 , 20:04
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Bank shares rallied yesterday after crisis-hit Credit Suisse bagged a £45billion lifeline.
But fears remain that the world could still be headed for a repeat of the 2008 global financial crisis.
The Swiss giant, founded in 1856, went cap-in-hand to the country’s central bank to shore up its stricken finances.
Experts called it a vital intervention to stem mounting fears about the state of the world’s banking system.
Russ Mould, investment director at stockbroker AJ Bell, said investors could now “breathe a sigh of relief”.
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But the spectre of the 2008 crisis remains. It was sparked by a US housing bubble and failure of Lehman Brothers bank, led by Richard Fuld.
A trader on the New York Stock Exchange this week (John Angelillo/UPI/REX/Shutterstock)Credit Suisse’s near-failure came after the collapse of US tech lender Silicon Valley Bank a week ago.
The UK’s FTSE 100 has plummeted in recent days, with £75bn wiped off firms’ total value. It staged a partial recovery yesterday after the Swiss rescue mission.
Susannah Streeter, of investment firm Hargreaves Lansdown, said Credit Suisse is the first bank deemed “too big to fail” to take up the offer of an emergency lifeline.
She added: “The announcement that it will draw on central emergency funds underlines just how fragile the lender had become.”
Are a lot of banks in trouble right now?
Any talk of banks struggling reignites fears of the 2008 financial meltdown, and all the pain that followed. But for now, it is only a few banks.
So what has gone wrong?
Tech sector lender Silicon Valley Bank was laid low by a combination of rising interest rates, bond investments and a plain old run on the bank by spooked customers. There is no direct link to Credit Suisse’s problems, which stem from years of scandals.
What was the response from financial authorities?
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They rushed to extinguish the wildfire caused by Credit Suisse, SVB and others. The Swiss National Bank has coughed up a £45billion loan US President Joe Biden vowed to do “whatever is needed” to protect US deposits and SVB’s UK arm was sold to HSBC for £1.
What’s the worst-case scenario?
The fear is of another financial wildfire. As we saw from the2008 financial crisis, they can spread rapidly. Economist Nouriel Roubini, known as Dr Doom, said the fate of Credit Suisse was a “Lehman moment” for European and global markets –referring to the collapse of US investment bank Lehman Brothers in 2008 under chairman Richard Fuld. Roubini tweeted that Credit Suisse could go bust over the weekend if the European Central Bank hiked rates yesterday – which it then did.
How concerned should I be about my money?
Victoria Scholar, of Interactive Investor, said: “The regulatory environment is much stricter now than it was in 2008.”
There are measures now to prevent chaos in one part of the financial system spreading to another, she went on, adding: “The worse thing to do would be to panic right now.”