In an effort to prevent the spread of instability following the industry’s most tumultuous week since the 2008 financial crisis, the Bank of England has instructed British lenders to disclose their exposure to global debt markets.
Threadneedle Street officials held discussions with large and small banks to assess their risk profiles and request a breakdown of their bond market investments. The talks also addressed any direct UK exposure the banks had to Credit Suisse, which was in crisis at the time, though it is believed to be minimal.
#Switzerland is preparing to use emergency measures to fast-track the takeover by #UBS of #CreditSuisse, according to three people familiar with the situation, as the banks and their regulators rush to seal a merger deal. Swiss regulators told their #USA and #UK counterparts on… https://t.co/Yv3NIvUM56
— Share_Talk ™ (@Share_Talk) March 18, 2023
Similar efforts are underway by regulators in the US and Europe to mitigate the growing banking crisis. Credit Suisse executives in Switzerland are in crisis meetings to consider a merger with UBS as they attempt to restore investor confidence.
Despite the Swiss central bank’s injection of $54bn (£44.5bn) to stabilize the situation, Credit Suisse’s shares fell another 8% on Friday.
Last week saw shares in the bank plummet by over 25%.
Meanwhile, despite a $30 billion cash injection from a group of Wall Street giants to support the crisis-hit Californian lender, First Republic Bank’s shares dropped by a third on Friday.
The collapse of Silicon Valley Bank (SVB), which went bankrupt after its bets on government bonds failed due to a surge in interest rates, was the catalyst for the current crisis.
SVB reported a loss of $1.8 billion from the sale of a portion of its bond portfolio, prompting the bank to seek fresh capital. This caused depositors to panic and withdraw their money from the bank.
UK regulators have been working urgently to assess whether British lenders could face similar risks that caused the collapse of SVB. As a precautionary measure, officials from the Bank of England approached UK banks last week to ensure that they remain financially sound.
Fortunately, no immediate threats to the UK financial system were identified, and there is widespread confidence that lenders of all sizes can withstand the current disruption comfortably. However, the fact that the Bank of England intervened underscores the level of concern arising from the failure of SVB and the issues at Credit Suisse.
City sources report that large UK banks’ credit departments are in close communication with Threadneedle Street and the City watchdog, while a smaller lender received information requests from the Bank’s Prudential Regulation Authority (PRA), including a breakdown of their exposure to bond markets.
According to Morningstar, around $466 million has been withdrawn from Credit Suisse’s European and US-managed funds in recent days.
According to a source at a rival bank in the City, clients are withdrawing money from Credit Suisse at an alarming rate. Despite the Swiss National Bank’s loan, which has helped to allay fears of default, clients are still anxious. The Swiss national bank and regulator Finma are in a race to secure a deal with UBS before the markets open on Monday, with the Bank of England and US authorities involved in discussions on the new legal structure.
Failure to reach an agreement could result in a further sharp drop in Credit Suisse’s share price. Sources told the Financial Times that deposit outflows from the bank exceeded Sfr10bn (£8.9bn) per day late last week as concerns about its financial condition grew.
Credit Suisse CEO Ulrich Körner stated last week that the measures taken demonstrated decisive action to strengthen the bank and that he and his team were committed to delivering a simpler and more client-focused institution. The Bank of England declined to comment.
