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Europe’s Credit Suisse is in trouble. Could its problems infect the rest of the financial system?

By Mitchell Hartman

First, Silicon Valley Bank failed. Then, Signature Bank failed. Now, in Europe, Credit Suisse is teetering. On Tuesday, the Swiss bank reported it had found “material weaknesses” in its past financial reporting. The bank’s biggest investor — the Saudi National Bank — said it was not about to pony up any more capital to prop up its sagging balance sheet. On Wednesday, Credit Suisse shares took a beating. The bank has reportedly asked Switzerland’s central bank for support. And The Financial Times is reporting that the European Central Bank has asked lenders throughout the European Union to disclose exactly how much exposure they have to Credit Suisse….“Credit Suisse has been scandal plagued for the last few years,” added Karen Petrou at Federal Financial Analytics. The bank has a reputation “for flying very close to the edge, a number of serious scandals with fraudulent borrowers, terribly lax internal controls,” she said. Those problems may be unique to Credit Suisse. But in the current climate of fear and uncertainty, the CS saga has global investors worrying. “Any bank of its size that is so accident-prone is a very high-risk institution. And then people are looking again and very askance at other high-risk institutions,” Petrou said.

https://www.marketplace.org/2023/03/15/credit-suisse-in-trouble-financial-contagion-fears/?utm_campaign=20230315_Marketplace&utm_medium=email&utm_source=sfmc_What%e2%80%99s%20going%20on%20with%20Credit%20Suisse&utm_content=Plus,%20a%20new%20raft%20of%20economic%20data%20for%20the%20Fed%20to%20ponder.&utm_term=3772755…

Regulators Had the Tools to Prevent Customer Concentration at Failed Banks

By Bill Alpert

After bank runs led regulators to shutter Silicon Valley Bank and Signature Bank, a Monday speech by President Joe Biden pinned blame on his predecessor, Donald Trump. Legislation signed by Trump in 2018 freed regional banks like Silicon Valley from strict federal banking rules.But state and federal regulators seem to have had the tools they needed to prevent the two bank failures. “The major flaws here were in supervision, not regulation,” says Karen Petrou, a longtime bank industry analyst at Federal Financial Analytics.

https://www.barrons.com/articles/regulators-signature-silicon-valley-banks-closing-3351ffa8…

Fifteen Years After 2008, Why Do Banks Keep Failing?

By Peter Coy

The weekend rescue of uninsured depositors in Silicon Valley Bank and Signature Bank was absolutely essential and absolutely frustrating. We have to stop getting ourselves into these messes, people. If the federal government hadn’t given a blanket of protection to all deposits, companies that had deposits in either of the banks above $250,000, the maximum that’s insured by the Federal Deposit Insurance Corp., would not have been able to pay their workers. Start-ups that bank with Silicon Valley Bank would have been imperiled. “It could have destroyed early-stage biomedical research in this country for a decade,” said Karen Petrou, the managing partner of the consulting firm Federal Financial Analytics, who sits on the board of a biomedical research foundation…. “It could have destroyed early-stage biomedical research in this country for a decade,” Insuring all bank deposits would make banks look more like public utilities, Petrou told me. She said she’d prefer relying more on market discipline, as originally intended. But that ship may already have sailed.

https://www.nytimes.com/2023/03/13/opinion/silicon-valley-bank-fdic.html…

Three days later, what’s come of the SVB collapse?

With Host David Brancaccio

Since the collapse of the California-based Silicon Valley Bank on Friday, the fallout on the wider financial system has led to a new federal lending program and the shutdown of Signature Bank. We talk with Karen Petrou, managing partner at Federal Financial Analytics, about what steps regulators have taken in the wake of the debacle — and what they may have missed in the leadup to the chaos. And, a word from the UK’s top financial official on HSBC’s acquisition of SVB’s operations in that country.

https://www.marketplace.org/shows/marketplace-morning-report/three-days-later-whats-come-of-the-svb-collapse/…

Banks fought to fend off tougher regulation. Then the meltdown came.

By Zachary Warmbrodt

Three days before Silicon Valley Bank’s failure, big bank lobbyists and executives were triumphant. They had convinced key GOP lawmakers to publicly warn Federal Reserve Chair Jerome Powell against tightening regulations on the industry….“What’s really at issue here isn’t the rules,” said Federal Financial Analytics managing partner Karen Petrou, who advises bankers and others on policy. “It’s how they were enforced by supervisors clearly asleep at the wheel because they thought they had a safe, self-driving car.”

https://www.politico.com/news/2023/03/12/banks-regulations-feds-svb-meltdown-00086694…

In abrupt reversal, regulators to cover Silicon Valley Bank, Signature uninsured deposits

By  Kyle Campbell Claire Williams

In a stunning decision, federal regulators issued a systemic risk exception to protect uninsured customer deposits at Silicon Valley Bank of Santa Clara, California, in the wake of the bank’s sudden failure on Friday, and the Federal Reserve announced the creation of a lending facility large enough to cover all the insured deposits in the banking system….Karen Petrou, managing partner at Federal Financial Analytics, said there were likely to be lasting implications for the agencies’ moves, but the agencies are rightly concerned about the immediate risk of failing to do enough early enough to allow depositors all over the country regain confidence in the banking system. This decision has major long term policy implications, but the simple fact that money is safe will stem the kinds of runs that seem to be brewing all over the country,” Petrou said. “Most people don’t understand if their banks have a complex business model or not. I’ve talked to lots of regular people who are frightened, and that’s exactly why the Fed, FDIC and Treasury think there was significant risk.”  When asked whether the moves would be sufficient to meet that need, Petrou was cautiously optimistic. “I would think so, but we won’t know until the banks open in the morning,” Petrou said. “That’s why regulators threw everything they could at this fire.”

https://www.americanbanker.com/news/regulators-to-cover-svb-sbny-uninsured-deposits…

Treasury, regulators unveil bank rescue plan to stem crisis

By Zachary Warmbrodt, Victoria Guida and Sam Sutton

Federal authorities took aggressive action Sunday to end days of global uncertainty and panic, agreeing to backstop all depositors for two failed lenders — and to prevent runs on any other financial institutions. The Treasury Department, Federal Reserve and FDIC vowed that taxpayers would not bear losses from the moves to bolster the depositors at the two shuttered lenders, Silicon Valley Bank and Signature Bank. The agencies said Silicon Valley Bank’s depositors would have access to all their money on Monday…The agencies were praised by lawmakers from both parties for taking swift action to stem a financial panic. But Federal Financial Analytics managing partner Karen Petrou said the situation was one of their own making, criticizing regulators for not acting on problems at both banks before they failed. The massive intervention was required because the Fed and FDIC “were caught flat-footed at SVB, failing not only to anticipate its structural weakness due to concentrated deposits and illiquid assets, but also the broader shock [that] closing a big bank would do after decades of depositor bailouts,” said Petrou, who advises bankers on policy.

https://www.politico.com/news/2023/03/12/fdic-holds-auction-for-svb-amid-growing-uncertainty-00086696

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Where Were the Regulators as SVB Crashed?

By Ben Eisen and Andrew Ackerman

Silicon Valley Bank’s failure boils down to a simple misstep: It grew too fast using borrowed short-term money from depositors who could ask to be repaid at any time, and invested it in long-term assets that it was unable, or unwilling, to sell….“The aftermath of these two cases is evidence of a significant supervisory problem,” said Karen Petrou, managing partner of Federal Financial Analytics, a regulatory advisory firm for the banking industry. “That’s why we have fleets of bank examiners, and that’s what they’re supposed to be doing.” The Federal Reserve was the primary federal regulator for both banks.Notably, the risks at the two firms were lurking in plain sight. A rapid rise in assets and deposits was recorded on their balance sheets, and mounting losses on bond holdings were evident in notes to their financial statements.

https://www.wsj.com/articles/where-were-the-regulators-as-svb-crashed-35827e1a?mod=Searchresults_pos3&page=1

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How Silvergate’s Crypto Collapse Differed From Silicon Valley Bank’s: No Bailout

By Bradley Keoun, Helene Braun

For all the angst this week about how troubles in the crypto industry are fueling a banking crisis, the reality, so far, is actually something else: Of the two banks that went under this week, the one squarely focused on crypto – Silvergate Capital‘s (SI) Silvergate Bank – escaped the black mark of federal assistance….“The bank entered the liquidity wringer with ample capital,” said Karen Petrou, a managing partner at Federal Financial Analytics.

https://www.coindesk.com/tech/2023/03/10/how-silvergates-crypto-collapse-differed-from-silicon-valley-banks-no-us-government-bailout/…