Evening Brief – 03.16.23

The announcement that Credit Suisse will draw up to $54 billion of emergency funds from the Swiss National Bank underlines how fragile the bank had become, as the withdrawal of deposits continued at pace and confidence seeped away.

It also highlights the lightning speed of the global fallout of Silicon Valley Bank’s collapse, which has shaken the banking sector, and prompted investors spotting weaknesses in other institutions to race for the exit.

For now, the move has restored a little stability in the markets. Systemic risk to the sector is still considered to be low, as larger banks have built up bigger capital buffers from the financial crisis and have stable deposits, while the coffers of some are believed to have swelled as customers seek out sturdier institutions for their deposits.

Meanwhile, First Republic which is probably the most “at-risk” regional bank, having had similar (heavily invested in long-term assets to the tune of roughly $120bn in mortgages), though less extreme versions of the problems that plagued Silicon Valley Bank, is reportedly going to get relief from other major US financial institutions.

Many large US banks got even bigger recently thanks to small bank deposit runs from the past week, which they are now returning as deposits back into those troubled banks.

Adding it all up: BTFP removes all the asset-side risk from bank balance sheets, while the big bank deposit pledges remove all liability-side risk.