Banking crisis in 2023

The US Federal Reserve raised interest rates on its deposits to such an extent that they far exceeded the interest rates offered by regular commercial banks. Following the laissez-faire dictum, many customers at one of such commercial bank called the Silicon Valley Bank (SVB) started pulling out their deposits and parking them with the US treasury. This run by the depositors caused SVB to sell many of their investments at a loss in order to fund these withdrawals, eventually leading to its collapse. That in short is what happened recently, not just with SVB but a couple more banks in the US.

On the other side of the Atlantic, Credit Suisse (CS) - one of the banking industry veterans, had to be acquired by UBS after the Switzerland's Cental Bank's intervention. So dire was the situation that this merger of CS into UBS was decided upon without undertaking the conventional and perhaps lengthy process of shareholder approval! Further the central bank has provided guarantees to bear a share in any potential losses of UBS caused by inheriting the CS investment and liability portfolio. In the case of CS though, its demise was caused by a mix of lowered customer confidence owing to a string of running afoul of many regulators and incurring regulatory fines over the past decade, accumulating losses due to failed investment banking strategies and a recent spurt in customer deposit withdrawals.

All in all, 2023 has started off on a very shaky note for the banking industry. Hopefully, there is not more to come!

Given below are links to two articles from different sources that elaborate on the SVB and CS debacles. Have a read through and let me know what you think on this topic.

How Silicon Valley Bank collapsed, who it affects, and what happens now - The Verge

UBS to take over Credit Suisse, assume up to 5 billion Swiss francs in losses | Reuters