Regarding the pressure on European banks over the last 24 hours, we thought some key points would be helpful.

Credit Suisse

1. Switzerland’s 2nd largest bank, Credit Suisse, is once again under pressure after struggling through more than 10 years of scandals and mismanagement. Due to fears sparked by the Silicon Valley Bank failure, all banks are facing higher levels of customer withdrawals. So, banks that are already “weak” are facing renewed investor pressure. Shares of Credit Suisse are trading dramatically lower today, as well as most other European banks on fears of contagion.
2. The triggering event today is the Saudi National Bank said in a statement that it would not buy any more shares of Credit Suisse’s stock because that would cause them to own 10% or more of the company, therefore requiring additional regulations. The Saudis had been seen as Credit Suisse’s most important investor as it has struggled over the years, so losing that access to fresh capital has added fuel to the fire started by the Silicon Valley Bank fallout.
3. Switzerland has substantial banking controls, and the US arm of Credit Suisse is subject to our FDIC regulations and oversight for large banks. Neither Switzerland nor the FDIC has made statements regarding the health of Credit Suisse yet. Indications from key sources, such as the Saudis, said the bank’s ratios are fine and within regulatory limits. Looking at the data, it appears the fear surrounding Credit Suisse is not that it is a Silicon Valley Bank-type failure, but instead that the bank isn’t generating enough income and therefore might default on its debts. Of course, more details will come.

Contagion

1. Where there is smoke, there is fire. Bank customer confidence is running low, which is creating withdrawals. Those withdrawals are creating both operational and profitability pressure on banks of every size. Due to regulatory requirements built after 2008, our current data shows most banks – especially the systematically important ones – have access to enough capital to avoid a 2008-type banking crisis. Today’s news about Credit Suisse does not change that data.
2. However, we can expect additional failures across the globe. Due to the current popularity of the topic, bank failures that would have gone unnoticed before will now make headlines. That will give the appearance that the problem is bigger than it is.
3. We will continue to follow the data. If a true contagion occurs, we expect the data to reflect the impact and allow for potential de-risking as needed. 

Treasury Liquidity

1. For years, liquidity in the Treasury market has been an issue for traders. Over the last year, those liquidity issues have been magnified as falling bond prices created even more uneven trading.
2. Specific to this last week, Treasury trading has again spiked. This has created trading spreads and execution times to expand.
3. While not a central conversation related to Silicon Valley Bank or Credit Suisse, it is an example of the “behind the scenes” issues banks are facing.
4. As of now, we do not have data to suggest that low Treasury liquidity is an imminent threat to global market stability, but the current liquidity problem isn’t helping banks.

Data related to Credit Suisse and contagion is fast-moving. If there is any new, important, information we will update you.