In light of several scandals that shook the stock market and caused its value to drop to less than a third in just over a year and a half, the Credit Suisse financial group is in a challenging position, which brings to mind the collapse of the American bank Lehman Brothers, the first significant casualty of the global financial crisis that erupted in 2008-2009.
The European Committee on Institutional Risks of the European Central Bank issued an extraordinary warning to the European financial sector at the end of September, urging banks to “prepare” for “severe risk scenarios” whose chance has increased since the start of the year.
The second-largest Swiss bank and the European banking and financial system as a whole, however, are better prepared to handle any catastrophe than they were at the beginning of the year, experts advised against giving in to panic.
Why does Credit Suisse cause alarm?
The Bush administration made the decision to let him drown at the start of the Lehman Brothers collapse in 2008, hoping to set an example while failing to consider all the potential repercussions.
The massive company’s bankruptcy increased market concerns that other institutions may follow, which aggravated the problems and spurred various countries to step in. In this case, the Belgian-Dutch corporation Fortis was shut down, and BNP Paribas Bank was given control over its Belgian branch. French.
Most importantly, nations were compelled to act quickly to support a number of institutions that were deemed “too big to fail” because, in the event of their failure, the entire financial system would have collapsed. Examples of such institutions include the American insurance company EAG and the French-Belgian Dexia Bank, which ultimately failed to resolve the debt crisis. Greek.
These rescues, though, came at a high cost to the public purse, set the stage for the subsequent debt crisis, and compelled the implementation of fiscal austerity measures, particularly in Europe.
Any takeaways from the 2008–2009 financial crisis?
Banks have worked extremely hard over the last ten years to strengthen their ability to withstand any crises.
According to the regulations established by the “Basel Committee for Banking Supervision” based in the Swiss city, the capital adequacy ratio that banks must adhere to to ensure their capacity to absorb future losses has been raised in this context.
The Credit Suisse Group reported a solvency ratio of 13.5 percent in its mid-year results published at the end of July. This ratio is 12.2% for BNP Paribas, 14.95% for the Italian bank “Uncredit,” and 13% for Deutsche Bank, to give some comparisons.
Alain Laurent, a Moody’s official, acknowledged that this ratio of assets, which allows for unforeseen losses, was “significantly enhanced” following the 2008 financial crisis and that the formula for calculating it had been changed to tighten constraints on banks.
The latest results of the most recent tests, which were published at the end of July 2021, showed that institutions are able to absorb the effects of a serious economic crisis without suffering significant losses. The European Banking Authority also mandates that fifty of the continent’s largest banks undergo periodic stress tests.
Do people worry about a new domino effect?
By contacting experts, AFP was looking for assurance.
The head of financial services at Columbus Consulting, Guillaume Larmaro, emphasised that Credit Suisse “remains a solid financial organisation.”
Additionally, France’s representative at Bank of America, Vanessa Holtz, told AFP that in the event of a crisis, “the financial health of banks is quite solid,” highlighting the fact that “the lessons have been thoroughly learnt from 2008.”
Additionally, Anna Putin, the president of the Spanish Bank of Santander, who leads the lobby of European banks, stated in February that in the case of a bank bankruptcy, Europe “today has a framework” to escape the crisis, regardless of its magnitude.
A new law, unlike what was the case before 2008, requires shareholders or large creditors to contribute finance in the first stage if governments attempt to offer funds as a last resort to save a bank.
Banks also contribute to a European fund whose objective is to keep taxes low for taxpayers.
Will Credit Suisse share Lehman Brothers’ demise?
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