The US banking fiasco spread through Europe and hit Credit Suisse. Let’s see how the bank was saved, as systematically important financial institutions are “too big to fail”.

🎞️ Catch up with Part 1 & Part 2

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Capital at risk. For sophisticated investors only. This video should not be construed as investment advice….(read more)

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Bank Failures: Credit Suisse is “Too Big to Fail” | Part 3

In the previous two parts of our series on bank failures, we discussed the complex web of factors that can lead to the downfall of financial institutions. In this final part, we will take a closer look at one of the world’s largest and most significant banks, Credit Suisse, and the implications of its potential failure.

Credit Suisse is a Swiss multinational investment bank and financial services company, which has been in operation for over 165 years. It is one of the “too big to fail” banks, a term used to describe banks that are so large and interconnected that their failure could have catastrophic effects on the global economy. This designation comes with a sense of security for these banks, as they are considered to be “rescuable” by governments and central banks in times of crisis.

However, despite this safety net, Credit Suisse has faced its fair share of challenges and controversies in recent years. The bank has been embroiled in multiple scandals, including the $5.5 billion losses from the collapse of Archegos Capital Management and the Greensill Capital insolvency. These incidents have not only eroded the bank’s reputation but also raised concerns about its resiliency and stability.

Furthermore, the ongoing low-interest environment and the economic fallout from the COVID-19 pandemic have put immense pressure on Credit Suisse’s profitability and balance sheet. The bank has been forced to make significant provisions for potential loan losses and has struggled to generate sustainable returns for its shareholders.

If Credit Suisse were to fail, the consequences would be far-reaching and severe. Its extensive global operations and wide-ranging business activities mean that its collapse could have systemic implications for financial markets and economies around the world. The bank’s interconnectedness with other financial institutions, as well as its pivotal role in the global capital markets, make it a critical piece of the international financial system.

The “too big to fail” status of Credit Suisse means that its failure would likely necessitate a government bailout, as the alternative could be a domino effect of financial instability and market panic. This raises important questions about the moral hazard of such large institutions, as the expectation of a bailout may encourage excessive risk-taking and irresponsible behavior.

In conclusion, the potential failure of Credit Suisse is a sobering reminder of the inherent fragility and interconnectedness of the global financial system. While “too big to fail” banks may seem invulnerable, they are not immune to the shortcomings and risks that come with their size and complexity. As regulators and policymakers continue to grapple with the challenges of regulating and supervising such institutions, the need for robust risk management and contingency planning has never been more critical. The future stability of the financial system may well depend on it.