Podcast
Questions and Answers
What led to the collapse of SVB?
What led to the collapse of SVB?
What was the cause of SVB's significant interest rate risk?
What was the cause of SVB's significant interest rate risk?
What prevented SVB from accounting for its losses?
What prevented SVB from accounting for its losses?
What was the largest US bank failure since the 2008 financial crisis?
What was the largest US bank failure since the 2008 financial crisis?
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What led to Credit Suisse's financial losses?
What led to Credit Suisse's financial losses?
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Who was appointed as Credit Suisse's chairman but resigned after only nine months?
Who was appointed as Credit Suisse's chairman but resigned after only nine months?
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What was Credit Suisse's plan to address its financial troubles?
What was Credit Suisse's plan to address its financial troubles?
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What led to panic selling and a 24% drop in Credit Suisse shares?
What led to panic selling and a 24% drop in Credit Suisse shares?
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What did the Swiss National Bank offer to Credit Suisse?
What did the Swiss National Bank offer to Credit Suisse?
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What was the outcome of UBS's agreement to take over Credit Suisse?
What was the outcome of UBS's agreement to take over Credit Suisse?
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Study Notes
Bankruptcy of SVB:
- SVB failed due to an imbalance in its balance sheet between assets and liabilities.
- SVB invested in long-term mortgage securities, which led to significant interest rate risk.
- The sharp rise in interest rates led to the collapse of the bond market in 2022, which had a considerable impact on the bond portfolio of the SVB.
- US accounting rules allowed securities held to maturity to be effectively recognized at their acquisition cost, which prevented SVB from accounting for its losses.
- Deposit withdrawals led to the largest US bank failure since the 2008 financial crisis.
- BlackRock warned SVB that its risk controls were "significantly inferior" to those of other American banks.
- SVB was unable to produce real-time or weekly updates on the evolution of its securities portfolio.
- SVB's CFO was looking for ways to boost the bank's quarterly profits by increasing the yield of the securities it held on its balance sheet.
- Goldman Sachs acquired the bond portfolio from SVB and made a capital gain following the fall in interest rates. Credit Suisse:
- Credit Suisse faced a series of scandals, failures, and disappointments over the past three years.
- The spy scandal and the collapse of Greensill Capital resulted in significant losses for Credit Suisse.
- Credit Suisse faced a series of scandals and financial losses from 2021-2023.
- Scandals included involvement in corruption in Mozambique, money laundering for a Bulgarian cocaine trafficking ring, and a data leak revealing involvement with entities involved in human rights abuses and other crimes.
- Financial losses included $5.5 billion lost from US family office Archegos Capital Management's default.
- Former Lloyds Banking Group CEO Antonio Horta-Osorio was appointed as chairman but resigned after only nine months.
- Credit Suisse's new leadership duo unveiled a plan to cut 9,000 jobs and spin off investment banking operations.
- The plan failed to impress investors, and customer withdrawals exceeded 110 billion francs.
- Credit Suisse postponed publication of its annual report and acknowledged "significant weaknesses" in its financial controls.
- Panic selling led to Credit Suisse shares plunging 24%.
- The Swiss National Bank offered a lifeline of 50 billion francs, but daily outflows of around $10 billion continued.
- UBS agreed to take over Credit Suisse for 3 billion francs in shares, wiping out lower-tier "AT1" bonds worth CHF 16 billion and ending Credit Suisse's 167-year history.
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Description
Test your knowledge on the bankruptcy of SVB due to an imbalance in its balance sheet and Credit Suisse facing scandals and financial losses. Learn about the factors that led to these financial institutions' downfall and the consequences that followed.
