With the risk of a global panic in the event of the full collapse of Credit Suisse and other major banks, we are witnessing a new ” everything in it ” Money.

Oh what a weekend! Money never sleeps… but apparently neither has the Swiss National Bank (SNB) since March 14 due to the collapse of Credit Suisse.

She may have had a very strong ‘let’s calm down’ thought, which hasn’t calmed the markets down.

So on Thursday night she put 50 billion Swiss Francs (CHF) on the table, or about 10 kerviel (amount of the loss “SocGen” attributes to its impetuous trader).

Credit Suisse had admitted losses of just over $8 billion in 2021, but that was apparently just the tip of the iceberg (below the surface, derivatives: a real financial Chernobyl in power!) as the SNB conceded an emergency credit line seven times that amount.

Then, this weekend, we learn that it will finally be 100 billion Swiss francs (or 20 Kerviel) that will be granted…this time to UBS to “pacify” the counterparties of that bank, which will therefore buy Credit Suisse.

Don’t panic at the Fed

Who is the first counterparty of these two banks to be reassured in this way? Well, it’s the Fed that provides them with the dollars they need to operate in the United States, in the form of trades.

These are greenback loans against collateral (assets pledged as collateral) with terms ranging from 24 hours to 90 days. So the Fed can decide overnight not to renew them trades at 24 hours and there it is game over for the bank, which cuts off the cash tap.

Which it obviously won’t do unless all counterparties (banks, hedge fundinsurers etc.) could in turn collapse within 24 hours.

But wait, that’s not all. To facilitate UBS’s takeover of Credit Suisse, the SNB flouted every rule it is supposed to enforce, starting with holding a vote of the two Swiss banks’ shareholders to approve the deal. Which typically takes between 15 days and three weeks…or even longer for a bank with 272 subsidiaries, more than half of which are in Switzerland.

Everything was completed there within 48 hours, which expresses the urgency of the situation, perhaps related to the discovery of “corpses in the closet”.

Or rather, a major incident at the heart of the derivative nuclear reactor with an estimated $14,000 billion outstanding and an unknown risk.

How big could the losses be? The $70 billion that disappeared from Lehman – which caused its bankruptcy – may be exceeded given the size of the safety buffer put in place this Sunday in favor of UBS!

Unfailing solidity

However, last Thursday, March 16, the SNB affirmed:

“Credit Suisse has assets well above the ‘Tier One Ratio’ and offers all the guarantees needed to continue its activities. »

Less than 48 hours later, Credit Suisse was no longer pursuing this as that bank will disappear from the financial landscape, bought by its sister company UBS.

UBS initially offered the takeover for a symbolic CHF 1 (rejected) and then agreed to a symbolic CHF 1 billion on Saturday evening. An offer was rejected very quickly as it represented just CHF 0.27 per share, against CHF 2 at the close on Friday, on a capitalization of CHF 7.9 billion, a fall of 87.4%.

On Sunday morning, UBS was granted a guarantee of CHF 9 billion (in the event of damage) by the federal government. The establishment then seemed in a more generous mood and offered a buyout of 2 billion, or 0.5 CHF per share… Before finding another billion that was behind the photocopier, it allowed him a 3 billion Swiss franc buyout (ie CHF) offering 0.76 per share and a loss of 62%). An offer that was eventually accepted, but under duress from the Swiss authorities.

FINMA, the Swiss financial markets regulator, has approved the deal, which means Credit Suisse creditors are sure to suffer losses (remember that CDS that have hit up to 1,000%, or 50% risk of downfall), which they hope will be limited. since bankruptcy was not declared and default in payment was not ascertained.

Who will be saved?

The markets should therefore be calm on Monday…

Oh, but wait…didn’t Janet Yellen say last Thursday that regional banks can’t be saved as “system banks” like Credit Suisse?

In other words, they can go bankrupt because they don’t get a government guarantee (like Switzerland did this weekend and the US did at the end of 2008).

Has she forgotten that the regional banks in the United States account for 50% of the loans made and even 60% of the mortgage loans to individuals and 80% of the mortgage loans to businesses?

Two additional columns should be written about the risk bank run to the central banks, which this type of statement weighs in… and, if you need further proof that we are living in a “Lehman moment” (for different reasons, but with an equally important systemic risk), the top five central banks from the planet (Fed, ECB, BoJ, BNS, BoE, Bank of Canada) offers liquidity in unlimited amounts (in the form of trades majority) to all financial sector actors in the countries concerned.

What level of underlying risk – which only they seem to know – can justify such a right? everything in it » planetary monetary policy?

Bruno Lemaire must be stunned: He assured us that our banks are rock-solid protected against any systemic risk.

But does he have the faintest idea what the term “systemic risk” entails in the globally connected world of banking, including the weekend?

Or maybe he thinks that, like the radioactive cloud from Chernobyl, the contamination will magically stop at our borders.