The Collapse

March was a month that scared the world with bank collapses. The culprits of the collapses are seen as rising interest rates altogether. But while interest rates are technically responsible, they're not the only reason. Just as SVB is not the only bank in the world. While there are so many banks still standing, the thesis that "if interest rates rise, banks will go bankrupt" is very wrong.

It is necessary to analyze well what Silicon Valley Bank did or what it did wrong. That's not our topic in this newsletter. But there are some studies that will summarize what is going on in the SVB;

To fully understand the major financial crashes, it is much more helpful to start looking back a few periods. For example, to understand today's SVB and the collapse of the banks that followed, we need to understand the shock of UK pension funds last year. We need to understand interest rates, bond markets and their strength.

Similarly, if we want to understand the Credit Suisse crisis today, we must go back and examine the Archegos collapse. Credit Suisse suffered a lot here.

About the effects of SVB;

US Treasury Secretary Janet Yellen said that they will not save the SVB, which is considered the biggest bank failure in the US since 2008, but that they are working to meet the needs of depositors and to prevent the crisis from spreading to solid banks.

Regulators shuttered Silicon Valley Bank and seized its deposits after depositors withdraw more than $42 billion.

The FED issued a statement together with the Treasury and the FDIC stating that all depositors of the Silicon Valley Bank will be protected and "no losses will be borne by the taxpayer." The regulators said this will apply to Signature Bank as well, which has also been closed. In addition, the Treasury said it will provide additional funding of up to $25 billion "to eligible depository institutions to help assure banks have the ability to meet the needs of all their depositors." The funds will be placed in a new Bank Term Funding Program (BTFP) and offered as loans of up to one year. 

The United States seems to have learned a lesson from history.

Ray Dalio called the bank turmoil a "very classic event in the very classic bubble-bursting part of the short-term debt cycle."

In response to the fall of SVB, Moody's downgraded its outlook for the US banking system, citing the rapid deterioration of the conditions facing the sector. "Pandemic-related fiscal stimulus along with more than a decade of ultralow interest rates and quantitative easing resulted in significant excess deposit creation in the US banking sector," Moody's strategists said. "

As UMvest, we believe that it is a cycle and as a result of natural selection, the weak will disappear. We see very low probability of depositors who want to get their money back to create a crisis like in the past.

Because now times have changed, almost everyone has more than one bank account and if you want to transfer your assets from one bank to another, all you need is a device with an internet connection. The SVB crisis has shown us that despite all the conveniences, depositors are not in a hurry to transfer money as they used to.

About the effects of Credit Suisse;

Firstly, Credit Suisse said it intended to borrow up to 50 billion Swiss francs ($54B) from the Swiss National Bank in what it called "decisive action" to boost its liquidity. After, UBS agreed to buy opponent in government-brokered deal. 

Credit Suisse said 16 billion Swiss francs ($17.2B) of its AT1 debt will be written down to zero on the orders of the Swiss regulator as part of its rescue merger with UBS, angering bondholders.

The extinction of Credit Suisse, which is about 170 years old, cannot be interpreted as natural selection. Certainly, this is a case that will affect the European banking system. We need to wait a while longer in order to interpret what is happening correctly and to calculate its effects correctly. But right now, no one can be sure that Credit Suisse wasn't the first domino.

There is a second risk that has been overlooked in the long run. Following the agreement, UBS emerged as Switzerland's only global bank!