What links the failure of Silicon Valley Bank to the collapse of Credit Suisse

The two events that have dragged the markets down and rekindled distrust of the banking system have one true trait d’union: in America and Switzerland, the problem is the failure of public finance and credit regulators

Extreme synthesis of a deliberately non-technical note due to space constraints, but explicitly polemical. What does the explosion of Silicon Valley Bank and two other banking institutions in the United States really have in common with the collapse of Credit Suisse? Media and politics, but also banks and business associations, are thundering against the rate hike decided by the Fed and the ECB. In the Swiss case, the comments are unleashed against the “dark side” of the Swiss gnomes, an opaque crossroads of malfeasance and money laundering. But if we observe the reality of things, the two events that have dragged the markets down and rekindled distrust of the banking system have a single true trait d’union: the bankruptcy of the two public regulators of finance and credit, in the United States and in Switzerland.

Any serious history of Western banking systems in the twentieth century teaches that, when central banks lose control of rate expectations due to their own serious errors of assessment of inflation, one enters the most difficult duty of a central banker. Meaning what adopt a rate correction which, arriving late, is energetic in quantity and fast over time on the one hand, but accompanied by great attention to the short-term systemic effects of restriction caused in economic activity on the other. Difficult task, when you’re back from having completely misunderstood the causes, intensity and duration of the inflation phenomenon. As happened for the Fed and the ECB in 2021 and again for a large part of 2022. But raising rates was and is necessary, after too many years of monetary drug addiction which has inflated and distorted the prices and returns of financial assets.