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Credit Suisse Bank Run?

Credit Suisse Bank Run?

American Union Bank, New York City. April 26, 1932.

$88 billion bank run.

You thought FTX was bad? Oh, that was just some light foreplay…

Credit Suisse (CS) revealed $88 billion in client outflows over the last few weeks and now warns shareholders it will report a fourth quarter loss of up to $1.5 billion.

The slump in confidence was particularly pronounced in CS’s private wealth management unit, which bled 10% of assets under management.

This comes on the heels of intense speculation around the bank’s solvency.

CS claims a CET1 ratio of 12.6% on its balance sheet, i.e. funds available to cover immediate losses.

Share of the Schweizerische Kreditanstalt in Zurich, issued 31. May 1898, predecessor of Credit Suisse.

This suggests the bank is short-term levered 8X, which (believe it or not) isn’t even that bad compared to industry peers.

However, markets strongly disagree.

When comparing CS’s market cap of $10 billion (down another 6% today) to its off-balance sheet exposure of $860 billion, the implied leverage suddenly looks more like +80X (!)

How is this possible?

It’s because our current financial system let’s banks use client funds as collateral for massive financial bets, i.e. fractional reserve banking.

That’s why bank runs are such a problem. The money simply isn’t available for withdrawals… Instead, it’s on the casino floor.

Come to think of it, isn’t that what FTX did?

FTX gave its users worthless promises of repayment, then took their funds and gambled them away.

Sounds like just another Tuesday in fiat world.

And the New York Times seems to agree, which is hosting Sam Bankman-Fried at its prestigious DealBook Summit next week, alongside fellow financial luminaries like Janet Yellen.

Sure, why not.

Swiss Credit Institution’s headquarters in 1895

Did FTX even do anything THAT wrong? Certainly nothing worse than what happens in TradFi.

In fact, TradFi takes things even one step further – gambling with client funds isn’t enough. When their bets invariably blow up, public savings get hollowed out to keep the racket going.

That $88 billion bank run on CS?

Turns out, $11 billion of emergency funds were surreptitiously funneled to the Swiss National Bank via Fed USD Swap Lines as people were flooding CS with withdrawal orders.

Why use exotic Swap Lines?

Oh, because that way Congress doesn’t need to sit down and have an open vote on the expropriation of US taxpayers.

That could get a bit awkward, after all…

The inside of a Credit Suisse building in the 1930s

Still wasn’t quite enough though.
CS is now begging the Saudi National Bank for another $4.2 billion.

But don’t worry, that won’t be enough either.

*You’ll own nothing and be happy* isn’t just a meme – it’s what the current financial system is counting on.

Written by Andrew Axelrod

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Credit Suisse Bank Run?