Silicon Valley Bank and Credit Suisse: why always the banks?

Silicon Valley Bank and Credit Suisse: why always the banks?

An the end of a turbulent week for the world financial system, the big chaos didn’t materialize. The major bank Credit Suisse is still open and things have calmed down a bit in the United States after the beginning of the week Silicon Valley Bank, a major financier of American start-ups, was closed. On Friday night, however, several major banks had to pledge support of $ 30 billion to a regional bank from San Francisco called First Republic, in the form of special deposits. After that, the share prices on the stock exchanges started to swing more strongly again. This shows that the shock runs deep.

Patrick Bernau

Responsible editor for economy and “value” of the Frankfurter Allgemeine Sunday newspaper.

Dennis Kremer

Editor in the “Value” section of the Frankfurter Allgemeine Sunday newspaper.

The Swiss authorities are working on it this weekendto persuade UBS to take over Credit Suisse to prevent worse. According to media reports, this is “Plan A”, and government aid worth billions is now also being discussed.

After the great financial crisis of 2008, this shouldn’t happen anymore. The banks should be adequately regulated, failure should be possible without major upheavals. So how was it possible that the bankruptcy of the Silicon Valley Bank, previously known only to insiders, made investors, supervisors and politicians so nervous in distant Europe? That then a sentence from a major shareholder was enough to make the once proud CreditSuisse to the brink of collapse? And why is it always the banks that make the world so worried?

Banks are different

There is a short answer to all these questions: because the banking business is fundamentally different from the rest of the economy. Banks have a characteristic that hardly any other industry knows: their entire business model is fundamentally based on the fact that they will still exist tomorrow.

Your favorite baker is closing in a few days? It’s a pity, but today you can still buy bread. The doctor is closing next week? This is unfavorable because his knowledge of the history of the disease is also lost – but today he can still issue a prescription. And the department store might be bankrupt in two months? Then it could be difficult with the guarantee, but the pants are not worse because of that. Even the trouser supplier can still send his parcels, maybe he insists on payment in advance.

With the banks it is different. They are, to put it exaggeratedly, a kind of time machine: anyone who could actually afford a house or start a business many years from now can do so today with a bank loan. And if you have money that you don’t need now but will in the future, you can take it to the bank. But that will only work if the bank is still there tomorrow. This is exactly why everyone reacts so sensitively to even the slightest doubt about their solidity.

Although at first glance the banking business is purely number-driven, it is ultimately based on a primal human trait that cannot be expressed in numbers: on trust that what you paid in today will still be there tomorrow. If this trust is disturbed, the crisis is difficult to stop. “Trust is the beginning of everything” – it’s no wonder a bank once advertised with this sentence.

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