Wall Street banks stage bailout as financial crisis deepens

The declarations of the financial authorities and the big banks which try to stem the aggravation of the crisis of the financial system, crossed by contradictions, take on an increasingly bizarre character.

On the one hand, they announce emergency actions, citing mounting dangers, while at the same time insisting that all is well.

Treasury Secretary Janet Yellen testifies before the Senate Finance Committee on March 16, 2023. (AP Photo/Jacquelyn Martin)

As a comment in the Australian Financial Review earlier this week, noted: “It’s one of those great unwritten rules of life: When someone tells you that everything is fine and nothing to worry about, you you can be pretty sure the opposite is true.”

When the Fed and the Federal Deposit Insurance Corporation (FDIC), backed by the Biden administration, launched the rescue operation for wealthy uninsured depositors holding more than $250,000 at Silicon Valley Bank and Signature Bank, they did so by invoking the threat of “systemic risk”. ”

And when, in the early hours of the morning, the Swiss National Bank and the country’s financial regulator, FINMA, announced the extension of liquidity at Credit Suisse, they insisted that there was no threat of contagion from the worsening crisis in the US banking system. Credit Suisse eagerly jumped on the offer and took out a $54 billion loan from the Swiss central bank.

Yesterday saw a major intervention by the biggest US banks to deposit a total of $30 billion with First Republic Bank, which has come under considerable pressure following the demise of SVB.

A total of 11 banks are involved in the deal, led by JPMorgan Chase, Bank of America, Citigroup and Wells Fargo, which will each invest $5 billion, while others including Goldman Sachs and Morgan Stanley will contribute amounts more modest.

Once again, the contradiction between the action taken and the words of comfort that accompanied it was flagrant.

In a joint statement, the banks said their actions reflected “their confidence in the country’s banking system” and that they were deploying their “financial strength and liquidity in the wider system, where they are most needed”.

If they are so confident, why is action necessary?

The decision of Jamie Dimon, the chief executive of JPMorgan, and other bank executives, who are not accustomed to spending billions of dollars at least where they see no prospect of return, indicates that there is real fears about the stability of the whole financial economy. system.

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