In a 5 domino play we have seen the plight of the 16th
largest US Bank who, before the call to raise capital and subsequent run on the Bank, held $212bn in assets. The dominoes were:
- Hike in interest rates, causing a reduction in the value of the bonds.
- Tech companies drawing on their deposits while seeing mass layoffs.
- Bonds are sold at a loss, creating a…
- Need to raise capital and a…
- Subsequent panic and run on the bank.
How does a Bank counter such a self-fulfilling prophecy and what can executives and non-executive teams do to protect against such actions?
It’s a stark reminder to not be complacent. There are undoubtedly questions to be asked and lessons to be learned. Is this the start of the next financial crisis? I rather believe and hope not, but it will raise the eyebrow of the regulators and the politicians on what the peaks of the ripple effect are likely to be. Especially when compounded by the news of Credit Suisse’s funding needs emerging in the same week.
There are some clear indicators that all was not well – even allowing for the fact that the differing regulatory and accounting regimes require different standards and application.