How much is 2008 in the current crisis

Things are similar: Banks are in trouble and need to be rescued quickly. Are we threatened by another financial crisis like 15 years ago?

Headquarters of Swiss banks Credit Suisse and UBS at Paradeplatz in Zurich

Worries are high after the bank quake in Switzerland – memories of the last financial crisis are still very vivid. Could it be as bad as 2008? Then as now, it was all about bailing out banks in busy weekend operations orchestrated by governments and using billions of taxpayers’ money.

What is different from the global financial crisis today

Enough of the parallels here. Experts say that today everything is different. At that time, first US financial institutions – and later financial institutions around the world – got in trouble for giving mortgage loans to people who could offer little collateral.

Big but dishonest deals were made with these loans, which were resold and transformed beyond recognition into other financial products – until the card house collapsed.

But this time, US Treasury Secretary Janet Yellen says the problems have little to do with fraud, gambling or greed. Recent developments will differ significantly from the global financial crisis.

Banking crisis: criminal energy then, management errors today?

Alongside Switzerland’s leading bank Credit Suisse, the focus is now mainly on smaller US institutions that have to make high value adjustments to their balance sheets. The reason: The value of government bonds in which they invested fell sharply. This imbalance afflicted customers, who then drew enormous sums from the affected banks, adding to their misery.

Here’s what the financial market looks like after the Swiss bank earthquake:

The message to be conveyed: criminal energy then, management errors today. He could see problems coming.

Capital can be moved faster today digitally

Compared to the 2008 financial crisis, John Waldron says something is different. Waldron, who has worked at influential US investment bank Goldman Sachs for 23 years and now has operations there, has discovered that liquidity and capital can now be moved much faster digitally. This poses even greater challenges for bankers: “This is certainly a factor in the upheavals we’re experiencing right now.”

[Wohin mit dem Geld in einer Bankenkrise? Und wie sicher sind Anleihen, Gold oder Bitcoin?]

Either way, banks are in trouble again. And this is despite the fact that much has been done in recent years to prevent it. Financial institutions had to increase their equity base and strengthen the risk buffer – to three percent of the business; Even large banks are up to 4-5 percent.

In an emergency, banks still rely on the government

“But that’s not enough,” stresses Gerhard Schick. Former member of the Bundestag for the Greens changed after the financial crisis. Today he sits on the board of the Finanzwende association, which is dedicated to sustainable reform in financial markets. Schick adds prudently:

95 percent of the business is still financed by debt.

Gerhard Schick, Finanzwende association

According to Schick, the equity ratio should still rise to at least ten percent. It only works with less, because in a crisis the big banks can expect the government to bail them out because of their size and importance.

Lessons learned but again forgotten from 2008?

This is exactly what you wanted to change. After the 2008 financial crisis, a mechanism was developed to resolve distressed banks. It is not used as can only be observed at the moment. The concern that the dissolution of a major player like Credit Suisse with multiple foreign subsidiaries and global businesses could wipe out other banks is clearly overwhelming.

Elsewhere, the fact of never wanting to bail out banks with tax money again has vanished. It is true that under the umbrella of the ECB there is a European banking supervisor who has recently threatened to re-tighten the thumbscrews. However, there is no European deposit insurance and bank solution with corresponding mandates, at least for the eurozone.

Gerhard Schick criticizes that the reform effort has weakened again in recent years: “Experience shows that changes in the banking sector are only possible in times of crisis and under public pressure. So are they now.”

Source: ZDF






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