The situation on the financial markets is extremely nervous on Thursday morning after the turbulence surrounding Credit Suisse. Politicians and central banks are making hectic efforts to calm investors and the population. Federal Finance Minister Christian Lindner emphasized the stability of the German banks on Wednesday evening in the ARD program “Maischberger”. “With the Bafin, we have an efficient financial supervisory authority, and we have the Bundesbank, which also has a tradition of stability policy,” he said. “We can therefore say very clearly: the German credit system – private banks, savings banks, cooperative institutes – is stable. And we will continue to ensure that.” The Federal Government is in constant and intensive exchange with all those involved.
When leading politicians feel compelled to make such statements, it shows the seriousness of the situation. The banking crisis, which has been smoldering since the US Silicon Valley Bank went bankrupt last Thursday, threatened to escalate into a global financial crisis on Wednesday. The cause was the fall in the price of the major Swiss bank Credit Suisse, which was already ailing. In the morning, the Saudi Arabian major shareholder Saudi National Bank said that he could not inject any more money because he would then hold more than ten percent of the shares, which is not permitted under supervisory law. This caused chaos on the stock market. Credit Suisse shares lost up to 30 percent on Wednesday afternoon and were suspended from trading several times. More and more customers withdrew their money from the institute, which accelerated the emergency.
Such a large drop in the price of such a large bank is extremely dangerous because the financial institutions are closely intertwined over billions. If trust in a bank is gone, this can quickly spread to the entire financial system. Investors therefore waited spellbound on Wednesday for the Swiss National Bank to finally intervene. In the evening came the redeeming message: The central bank is providing up to 50 billion francs (50.7 billion euros) to secure Credit Suisse’s liquidity.
This assurance was obviously necessary to prevent the banking crisis from spreading. Accordingly, the stock market reacted calmly on Thursday morning. The German share index (Dax), which had lost more than three percent on Wednesday, opened with a plus of one percent. Credit Suisse stock was up 33 percent when it resumed trading in the morning.
How is the ECB reacting?
The situation on the financial markets appears to have calmed down somewhat on Thursday morning. But there is still a lot of nervousness. “We now have a situation in which trust in credit institutions has been shaken,” said Clemens Fuest, head of the Munich Ifo Institute. Many investors in banks are now wondering if they will ever get their money back. That harbors the danger of a bank run, that is, depositors storming their financial institutions and withdrawing their money en masse. The seriousness of the situation can be seen from the fact that the US government has lifted the deposit insurance rules by protecting customer money beyond the previous guarantee of $250,000 after the collapse of the Silicon Valley bank. “This rapid action by the US government is on the one hand a positive signal in terms of stabilization. On the other hand, it is also a negative one because it shows how great the concern is,” said Fuest.
The interest rate meeting of the European Central Bank (ECB) will take place in the afternoon. So far, experts had expected the key interest rate to be raised by a further 0.50 percentage points. But now there are more and more voices who assume that they will only raise interest rates by 0.25 percentage points in order to calm the situation on the financial markets. This shows the dilemma of the central banks: the sharp interest rate hikes were necessary to get the high inflation under control. But they led to extreme bond price losses, which were at the core of the cause of the bankruptcy of the Silicon Valley Bank. Now the central banks should actually lower interest rates to calm the financial markets. But what about the fight against inflation?