The Swiss government has forced through the UBS takeover of failing bank Credit Suisse, in order to avoid another global financial crises.
As Credit Suisse's stock continued to slide downward by as much as 30% last week, both the traditional finance and crypto communities watched in fear wondering how the situation would effect the broader financial ecosystem.
The Swiss government and its regulators held frantic talks throughout the weekend to negotiate the bank's fate.
“The takeover of Credit Suisse by UBS is the best solution” in the current situation, said the Swiss president, Alain Berset.
Failure to protect Credit Suisse depositors and the make whole its debts (which are in excess of $53.7 billion), could trigger another economic crises akin to the 2008 financial crash.
This is because Credit Suisse is categorised by the global Financial Stability Board as one of 30 “systemically important” lenders in the global banking system.
Why did Credit Suisse start struggling?
The recent catalyst for Credit Suisse's stock plummeting was when the bank posted its biggest annual loss since 2008. Reports ensued about Swiss financial regulators reviewing the state of the bank's financial health.
These huge losses were in large part due to the bank run it experienced last year thanks to social media rumours that it was on the edge of collapse. As a result, Credit Suisse depositors withdrew billions.
But the global investment bank has been struggling for years after a series of poor decisions by management and some serious compliance issues, all of which cost it billions and resulted in the restructuring of its top tier executives.
In 2021 the bank took losses on loans in connection to Archegos to the tune of $5.5 billion. And then in 2014 it was embroiled in so much fraud it had to pay $2.6 billion to the United States Department of Justice (DoJ).
In addition to this, over the past decade, the Swiss bank has been levelled by so many penalties and fines regarding tax evasion, misplaced bets and other problems barely a month went by without it making the headlines.
What does it mean for crypto?
Along with the Silicon Valley Bank, Signature and Silvergate collapses, the fact that traditional finance (TradFi) is struggling, generally seems to be good news for cryptocurrencies.
The market rallied recently, with Bitcoin, Ethereum and many altcoins continuing to climb over the weekend. Perhaps this should come as no surprise. Bitcoin was born out of the 2008 banking crisis with its genesis block containing an inscription in the code:
"The Times 03/Jan/2009 Chancellor on the brink of the second bailout for banks" ~ Satoshi Nakamoto
And now many depositors are moving their funds out of traditional banking and into cryptocurrency, helping push prices skyward.
Ultimately, Credit Suisse hasn't unravelled because of crypto and the threat decentralized finance poses to the traditional finance system. Credit Suisse and the likes of Silicon Valley Bank all unravelled because they weren't good at being banks.
They held funds in long term savings accounts such as government bonds, the value of which has been eroded by sustained inflation rate rises. Their risk management has been bad. And they've been penalized multiple times for wrong-doing.
In short, banks do not have a crypto problem. Banks have a banking problem. And crypto's here picking up the pieces.
~ Zac Colbert, The Crypto Journo
#CreditSuisse #SVB #bitcoin #BTC #crypto2023
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