Credit Suisse...

…has become a history. The demise of the legend of the European banking might symbolise a mini-banking crisis witnessed in early 2023. I deliberately underline its small scale, as comparing to the meltdown in late 2008, the current tribulations pose no major risk to the financial system. Nevertheless, the insolvency of the Silicon Valley Bank has reminded about terms such as bail-out, Chapter 11, deposit insurance.

The sixteenth largest bank in the USA had a quite specific portfolio of risky exposures to tech start-ups and venture capital businesses. Many of them no longer thrived as the pandemic officially came to an end, so online ventures had to wind down. Besides, several businesses could not withstand interest rate hikes to level unseen in the USA since 17 years. For one of the banks this turned out to be a recipe for a disaster, while the rest of the banking sector carry on. Investors indeed reacted to the collapse of SVB, but the sell-off on stock exchanges reflected uncertainty, rather than panic.

Credit Suisse going under has surprise nobody keeping track of the banking sector and the takeover by UBS is to ensure a soft landing to the financial system. The lesson to be learnt is to keep away from murky institutions, a label Credit Suisse had worked hard for. On this occasion I recalled being recruited by CS in 2017 and being turned down on account of exorbitant expectations towards my pay. Time has proven that deal was not meant to be nailed down.

The recent opinion of European Court of Justice on inequality of rights in case a CHF mortgage loan agreement is nullified also cast a shadow of doubt on stability of the banking system in Poland. In fact whoever panics is overreacting. The mortgages in CHF are in fact being slowly written down for nearly a decade and most of the burden has been absorbed. As tackling the problem was eventually spread over time, losses could be gradually absorbed by banks. Currently only some banks with the biggest exposures to mortgages in CHF might be in need of capital injection is the ECJ ruling (binding, unlike the aforementioned opinion), but the risk of a Polish bank being on a brink of collapse is low.

Investors feared the turmoil in the financial sector could spill over to the real economy, hence stock exchanges and commodities were in the red in March 2023. If you bet the markets are overreacting, than an opportunity to buy up underpriced assets has cropped up. Lower prices of crude oil and other commodities can also contribute to faster disinflation, which in turn is likely to boost economic revival.