Reactions to bank mergers: major central banks intervene – economy
The Bank of England, the European Central Bank (ECB), the US Federal Reserve, the Bank of Japan, the Swiss National Bank and the Canadian Central Bank are reacting to the takeover of Credit Suisse by UBS and the difficulties of other banks: On Sunday they initially have an unspecified action to strengthen the supply of liquidity via the existing US dollar swap agreements. This is reported by the Reuters news agency.
had previously US Federal Reserve Chairman Jerome Powell and US Treasury Secretary Janet Yellen commented on the deal in Switzerland: “We welcome today’s announcements by the Swiss authorities to support financial stability.” We are also in close contact with international partners to support their implementation. At the same time, Powell and Yellen commented on their own banks: “The capital and liquidity positions of the US banking system are strong and the US financial system is resilient.”
The democratic US Senator Elizabeth Warren however, advocates an investigation into the recent collapses of American banks. Warren wrote a letter to the Treasury Department, the Deposit Insurance Fund (FDIC) and the Federal Reserve, it writes Wall Street Journal. She called for an investigation into the management of Silicon Valley Bank and Signature Bank and the oversight of the institutions in the run-up to the collapses.
Also the Bank of England welcomed the deal. The UK banking system is well capitalized and well funded and remains safe, says the UK central bank.
This reaction also comes from the European Central Bank (ECB). ECB President Christine Lagarde emphasized on Sunday evening that she welcomed the rapid action and decisions taken by the Swiss authorities. “They are critical to restoring orderly market conditions and ensuring financial stability.” According to Lagarde, the euro area banking sector is resilient and has strong capital and liquidity positions. “In any case, our policy toolbox is fully equipped to provide liquidity to the euro area financial system when needed and to ensure the smooth transmission of monetary policy,” stressed Lagarde.
The takeover of CreditSuisse by the rival UBS was after the words of Swiss Finance Minister Karin Keller-Sutter the only possible solution for the major Swiss bank, which has slipped deep into the crisis. “Any other solution would have triggered a financial crisis,” said Keller-Sutter on Sunday in Bern. Alternative scenarios would have entailed risks that could hardly be weighed up. A takeover of Credit Suisse by the state, for example, would have meant an “enormous risk for the taxpayer” and a liquidation of the institute would have “challenged the Swiss financial center,” explained the minister.
“Financial Banana Republic” Switzerland
Analysts are a bit more critical. Brian Jacobsen, senior investment strategist at Allspring Global Investments, says: “It appears to be a very big and crucial intervention. Assuming markets don’t sniff out other ongoing issues, I think that should be quite a positive. Governments are keen to douse the spark of contagion before the flames get out control.” Continuing: “The CS/UBS deal should be good enough to lift sentiment, but there will still be questions about regional banks in the US and whether there are hidden risks at European banks. There’s always something to wonder about have to worry about.”
Octavio Marenzi, CEO of the financial consultancy Optimas, says: “Switzerland’s reputation as a financial center has been shaken – the country is now considered a financial banana republic.” And he says: “This deal will inevitably provoke legal and political opposition. First, the Federal Council has exercised emergency powers to enforce this merger. Legal challenge by Credit Suisse shareholders, who see their property as unlawfully confiscated, is guaranteed. ” Further: “UBS shareholders, for their part, could rebel against this deal because they see the risk that Credit Suisse will prove to be a millstone around UBS’s neck, dragging both banks into the abyss.”
Berenberg chief economist, Holger Schmiedingsays: “They (the Swiss authorities) have identified a problem and are taking care of it. This is a very positive sign for the markets. While it does not mean that everything is over, there is no reason to panic. The relief for the markets is that systemic risk is contained.”
For Stephan Sola, Manager of Pluto’s Schweit Fundthe takeover “seems to be a good solution at first glance. However, the takeover price of around CHF 0.76 per share can only be described as outrageous. UBS radically exploits the CS position. The individual parts of Credit Suisse (Asset Management, First Boston, real estate) are worth several times the asking price. The best solution for me would have been a government guarantee for a certain period of time for CS. UBS will not hesitate to silver-plate the CS items and the workforce in the In – and to radically reduce foreign countries. The Swiss government and UBS have not done themselves any favors with this takeover. A single, huge Swiss bank will emerge, which will become enormously large with this opportunistic discount takeover, but will not improve in quality.”
