The Cambridge Weekly – 20th March 2023

The Cambridge Weekly – 20th March 2023

Bank stress testing – live

Unease about the state of markets had been palpable since more or less the beginning of the year, as noted repeatedly on these pages over the past months. Following the run on Silicon Valley Bank (SVB) last week, financial system fear spread around western markets and the smell of bank stress last experienced during the 2008/2009 Global Financial Crisis (GFC) had some market veterans experiencing a bout of posttraumatic stress disorder (PTSD). However, it seems to us that banks have simply become the unfortunate focal point of market unease and are now experiencing a similar roller-coaster ride, as felt by so many other sectors since the COVID pandemic disrupted every aspect of life.

When is a crisis a crisis?

When banks are in the news, it is rarely a good sign. Scars from the 2008/2009 global financial crisis (GFC) are still there for financial commentators and the wider public, so bank failures or excessive risk taking tend to get a high profile. That publicity is justified at the moment, with a second US bank collapse in the space of a week. US authorities rushed to insure deposits, while refusing to call it a bailout. Over the early part of last week, fear spread across the Atlantic. Stocks in Credit Suisse plummeted around 30% during Wednesday trading, after one of its major shareholders ruled out any extra investment. Switzerland’s central bank, the Swiss National Bank (SNB) was so concerned by this that it gave its national champion access to a heavy dose of emergency liquidity.