The Credit Suisse bank crisis has shaken the European banking system. The management problems of the second Swiss bank exposed the fragility of the bank ranked among the 30 largest in the world. Many wonder if we are not at the dawn of a new banking crisis like in 2008. Interview with Rafael Pampillón, doctor in economics, professor at the CEU San Pablo University.
RFI: The world of finance seems to have avoided the worst. After the announcement that the Swiss Central Bank granted Credit Suisse a loan of almost 50 billion euros to face the crisis affecting the second largest Swiss bank, to what extent is this crisis a threat to the financial system as a whole?
Rafael Pampillon: It seems to me that it does not pose a great threat because the European Central Bank has springs, it has mechanisms by which it watches and inspects banks so that they have good solvency ratios and good liquidity ratios. In other words, with Basel III, banks in the eurozone are now required to have 9% capital from these banks. He is constantly doing stress tests on them, in complicated situations. And the European banks are doing well from those tests that the Central Bank does.
RFI: Basel III, are these regulatory and capitalization measures imposed by the European banking authorities after the 2008 crisis, which, they say, guarantees stability. But this Wednesday, these European banks registered a loss of more than 60 billion euros of market capitalization after knowing the difficulties of Credit Suisse.
Rafael Pampillon: Yes effectively. It’s much cheaper to bail out a bank. It is much cheaper to put money to pay depositors who have their money in the bank, than not to cause a financial crisis like the one that was generated after the bankruptcy of Lehman Brothers.
RFI: If this situation of uncertainty continues, which banks could suffer the most?
Rafael Pampillon: If this uncertainty continues, then those banks that have credit more concentrated in more technological, more volatile sectors will suffer more. The more mature sectors, such as the electricity sector or the construction sector, do not have a problem like in 2008. At that time, the banks had many assets related to the real estate sector and subprime mortgages.
Now, the sectors that stand to suffer the most, as has happened with Silicon Valley Bank, are the highly leveraged tech sectors that are suffering more than the banks. To the extent that your loan portfolio and your securities portfolio are highly diversified, this greater diversification will give you more security and peace of mind.
RFI: Credit Suisse, it is known, is one of the 30 largest banks in the world, but at the same time it is the most penalized for various violations of international banking rules. How can this situation be explained?
Rafael Pampillon: It is explained by two reasons. One, due to the mismanagement that was carried out and the money laundering carried out by this bank. I also believe that the supervision of the Swiss Central Bank has not been good. The same thing happened with Silicon Valley Bank, which was badly managed and badly supervised. Well, logically, that is what has happened to this bank that, using that banking secrecy traditionally used in Switzerland, has carried out work and procedures and credits that were not transparent enough, which in the end have caused this bankruptcy situation. Let’s hope that the UBS, the Union of Swiss Banks, will take over this bank to solve that problem.
RFI: This Thursday, the European Central Bank announced its decision on interest rates, with an increase of 0.5 percentage points to keep inflation at bay. Doing so may add more stress to the current situation, but not doing so would reinforce the inflationary trend.
Rafael Pampillon: The two things are trues. Inflation is the main problem we have in Europe. We have inflation of 8.5%, much higher than the 6% in the United States. An inflation that must be controlled and reduced. And that can only be achieved with restrictive fiscal policies and restrictive monetary policies.
But of course, given the unstable situation of the markets, the Central Bank also has an obligation to keep the financial systems relatively calm.