Bank / Credit Union

Credit Suisse narrowly avoids shutdown with USB acquisition

Image via Adobe Stock

March 21, 2023

UBS has acquired Credit Suisse to prevent the bank from collapsing. The acquisition occurred in the wake of the recent collapse of Silicon Valley Bank, according to a report by Vox.

It also comes following various scandals Credit Suisse was involved in, including a spying scandal in 2020 and a court ruling that the bank hadn't prevented money laundering by a Bulgarian cocaine trafficking gang. Last week, Saudi National Bank, the biggest shareholder for Credit Suisse, announced it would not increase funding to the bank due to legal concerns, which caused the bank's stocks to fall.

Lofti Karoui, chief credit strategist for Goldman Sachs said there is "comfort from the limited contagion from US regional banks to larger money center banks, a trend we expect will persist," according to the news report.

However, there are still issues with banks in general, as a paper from University of Southern California, Northwestern University, Columbia University and Stanford University argues that almost 190 banks in the U.S. could go through a similar crisis as SVB if customers decided to rush to withdraw their cash.

The U.S. government is engaging in a number of efforts to prevent a crisis including:

• Lending to banks through a "discount window" program.
• Launching a program to help banks access one-year loans.
• Giving more access to swap operations for foreign banks.

Some have argued the government should raise or eliminate the $250,000 cap on FDIC-insured deposits. But this would require Congressional approval.

"I think the clear thing that would get right at the deepest concerns would be to just ensure virtually all these deposits for the moment like they're asking and just stop this completely," Itamar Drechsler, finance professor at the University of Pennsylvania's Wharton School, told Vox. "Despite it being something that a lot of people will say encourages moral hazard — and there may be some truth to that — right now, that would that would be the strongest thing you can do."