Flow the financial bubble

The problems of the largest banks are now in Europe - whether to wait for a global catastrophe?

The fate of Credit Suisse, the second largest Swiss bank with a 167-year history, one of the 30 world systematically significant banks that "cannot burst", has been decided. It is bought by the first largest Swiss UBS bank for 3 billion Swiss francs ($ 3.24 billion).

This is two and a half times less than the market value of Credit Suisse at the closure of trading on Friday, March 17, and ten times less than the market estimated it at the beginning of the year. Credit Suisse shareholders have multi -billion dollar losses. For example, the holder of the largest package - Saudi Saudi National Bank only six months ago bought 9.9 percent of the bank for $ 1.5 billion, and now the same package is estimated at only 215 million.

Lenders were also injured. When approving the absorption, the Swiss financial regulator FinMA ordered to write off to zero the additional bonds of the first level of AT1 (they belonged to the risky class of bank debt) for $ 17 billion placed by Credit Suisse.

Nevertheless, this “bad” deal for everyone is better than bankruptcy of the second largest bank in the country specializing in the banking business. At the end of 2022, there were $ 600 billion assets on Credit Suisse balance. Start selling them to pay off with depositors, world financial markets would cover up an even more powerful storm than the one that Lehman Brothers bankruptcy in 2008.

For the first time, this money should be enough to pay with panic clients

Namely, everything went to. Since the beginning of the year, Credit Suisse customers withdrew more than $ 100 billion from the bank, and last week the “flight of depositors” cost a bank of 10 billion a day. In case it continues, UBS bargained 100 billion francs (108 billion dollars) of additional liquidity from the Swiss National Bank. At least for the first time, this money should be enough to pay with panic clients. And if this money is still not enough, another 100 billion is promised.

And that's not all. The Swiss National Bank will not have to extinguish a fire in splendid isolation. In addition to him, five other largest central banks in the world take part in the elimination of the financial crisis - the American Federal Reserve, the European Central Bank, the Bank of England, the Bank of Japan and the Canada Bank. They will at least until the end of April conduct auctions daily for the provision of dollars.

The main task is to localize the crisis situation

The absorption of Credit Suisse has become the second shock for world finance since the beginning of March. Exactly a week ago it became known about the bankruptcy of the American Silicon Valley Bank. Despite the outcome different for these financial institutions, the actions of the regulators in both cases are built on the same approach. The main task is to localize the crisis situation and prevent it from developing into a global catastrophe.

At the same time, no one aims to fully compensate for the losses to shareholders and creditors. It is only important that losses do not lead to forced assets at any price. So far, this tactic looks quite successful. Prices for all risky assets - from shares of technological companies to commodity contracts (the exception is only gold) - are reduced, but there is no need to talk about an exchange collapse.

Fundamentally, so that the "bubbles" be blown away precisely, and not burst

The financial "bubbles", which have been puffed up for one and a half decades of the policy of zero rates and "quantitative softening", it is time to blow out. Excess money spilled into the consumer sector and provoked inflation acceleration. At the same time, it is fundamentally that the “bubbles” are blown away precisely smoothly, and not burst, causing irreparable damage to everything in the world - from the retirement plans tied to the stock markets to enterprises to the real sector, risk of losing money in bursting banks.

Providing this kind of "soft landing" requires surgical accuracy, and the price of error is extremely high. But Lehman Brothers, taught by the bitter experience of bankruptcy, the central banks of developed countries will prefer to print a hundred or two billions, so that later they do not have to solve the problems that are calculated by trillions, or even dozens of trillions.

The alternative will be the final loss of control over inflation

In a practical sense, this will mean that “blowing off the bubbles” will take quite a lot of time, and during this time inflation bursts and exchange sales that will have to be extinguished to prevent panic will have to be observed. This kind of controlled instability is weakly combined with sustainable economic growth, especially in countries where the financial sector occupies a significant share in the economy. However, the alternative will be the final loss of inflation control, which can acquire the prefix "hyper".