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UBS is in talks to buy Swiss rival Credit Suisse, the report said.



UBS Group AG is in talks to take over all or part of Credit Suisse after an emergency funding lifeline failed to restore investor confidence in the smaller Swiss bank, the Financial Times reported Friday.

The boards of Switzerland’s two largest creditors are set to meet separately over the weekend to discuss the deal, the FT reported, citing several people briefed on the talks.

A knowledgeable source said Swiss regulators are encouraging a merger between UBS and Credit Suisse, but both banks are unwilling to do so. Regulators do not have the power to force the merger, the source said.

Shares of Credit Suisse jumped 9% in over-the-counter trading after the FT report. Credit Suisse and UBS declined to comment on the report.

Credit Suisse, a 167-year-old bank, is the largest bank trapped in the market turmoil caused by the collapse of U.S. lenders Silicon Valley Bank and Signature Bank last week, forcing it to raise $54 billion in central bank funding.

Credit Suisse executives were scheduled to hold meetings over the weekend to chart the way forward for the ailing Swiss bank, people familiar with the matter have previously reported.

In the latest sign of growing troubles, at least four major banks, including Societe Generale SA and Deutsche Bank AG, have imposed restrictions on their transactions involving the Swiss lender or its securities, according to five people with direct knowledge of the matter.

“Credit Suisse is a special case,” said Frederic Carrier, head of investment strategy at RBC Wealth Management. “The intervention of the Swiss central bank was a necessary step to quell the flames, but it may not be enough to restore confidence in Credit Suisse, so there is talk of additional measures.”

The frantic effort to support Credit Suisse comes as politicians, including the European Central Bank and US President Joe Biden, have sought to reassure investors and savers that the global banking system is safe. But fears of wider problems in the sector remain.

As early as this week, big US banks have had to step in with a $30 billion lifeline for smaller lender First Republic, while US banks as a whole have asked the Federal Reserve for a record $153 billion in emergency liquidity in recent days.

This surpassed the previous high set during the most acute phase of the financial crisis about 15 years ago.

This reflects “a lack of funding and liquidity for banks caused by weakening depositor confidence,” said ratings agency Moody’s, which downgraded its outlook on the US banking system to negative this week.

In Washington, the focus was on strengthening oversight to hold banks and their managers accountable.

Biden, who promised Americans earlier this week that their deposits were safe, told Congress on Friday to give regulators more power over the banking sector, including increasing fines, reclaiming funds and barring officials from working for failing banks, the report said. White House statement.

A group of Democratic American lawmakers have also asked regulators and the Justice Department to investigate Goldman Sachs’ role in the collapse of SVB, the office of U.S. Representative Adam Schiff said Friday.

Market challenges persist

Bank stocks around the world have been hit since the collapse of the Silicon Valley bank, raising questions about other weaknesses in the financial system as a whole.

Shares of Credit Suisse, Switzerland’s second-largest bank, closed up 8% on Friday, with Morningstar Direct reporting that Credit Suisse recorded a net outflow of more than $450 million from its funds managed in the US and Europe from March 13 to 15. .

Analysts, investors and bankers say the loan from the Swiss central bank, which made it the first major global bank to undertake an emergency bailout since the 2008 financial crisis, has only bought time to decide what to do next.

U.S. regional bank stocks plummeted on Friday, with the S&P Banks index down 4.6%, sending it down 21.5% over the past two weeks, the biggest two-week calendar drop since the COVID-19 pandemic. 19 rocked the markets in March 2020.

First Republic Bank closed on Friday with a 32.8% drop, bringing its losses over the past 10 sessions to over 80%.

While support from some of the largest US banks averted its collapse this week, investors were rattled by First Republic’s late disclosure of its cash position and how much emergency liquidity it needs.

“It looks like the reputation of the First Republic brand may have been damaged. (It’s) a shame because it was a high-quality, well-managed bank,” said John Petrides, portfolio manager at Tocqueville Asset Management.

Earlier Friday, SVB Financial Group said it had filed for a court-supervised reorganization days after its former banking arm, SVB, was turned over to US regulators.

Regulators have asked banks interested in buying SVB and Signature Bank to submit bids by Friday, people familiar with the matter said. U.S. regulators are ready to consider having the government support the losses of SVB and Signature Bank if that helps the sale, the Financial Times said on Friday, citing people briefed on the matter.

Authorities have repeatedly tried to emphasize that the current turmoil is different from the global financial crisis 15 years ago, as banks are better capitalized and funds are more readily available, but their assurances have often fallen on deaf ears.

The ECB held an unusual supervisory board meeting, the second this week, to discuss stress and volatility in the banking sector.

Supervisors have been told that deposits in the euro area are stable and Credit Suisse’s risk exposure is negligible, a source familiar with the meeting told Reuters.

An ECB spokesman declined to comment.

(Only the title and image of this report may have been remastered by Business Standard staff; the rest of the content is automatically generated from the syndicated feed.)

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How ‘payment banks’ can prevent the next bank crash



At the heart of Silicon Valley Bank’s collapse were uninsured savers — specifically start-ups that have much more than the $250,000 insured limit and can’t get paid without access to their accounts. This is tempting given SVB’s inability to suggest that the insured deposit limit needs to be raised, but this decision creates new problems. The best approach for the US would be to follow the example of other countries and create “payment banks” that are virtually risk-free, highly regulated, and have access to the payment network. They will be a place where companies can place funds – such as venture capital investments meant to pay wages – without exposing themselves to the risks that conventional banks create.

The failure of Silicon Valley Bank highlighted the underestimated weaknesses of the US banking system. While banking crises have historically been linked to credit risk, the recent crisis of confidence has arisen from unrealized losses on safe-haven securities that have left savers anxiously seeking liquidity. The liquidation of these securities resulted in losses in current market prices and heightened the fears of these depositors, leading to a bank run.

While insured savers have little to worry about, the recent crisis has highlighted the critical role of large uninsured savers who are understandably prone to worry. They make up more $8 trillion — or about 40% of all US deposits.

And one concern in particular stands out: the prospect of many companies inability to pay wages was a critical aspect of this crisis, as it became clear that some uninsured depositors were business customers who could not pay their employees without access to their accounts.

The problem of uninsured deposits

As an emergency response, the FDIC needed to effectively remove the deposit insurance limit and declare troubled banks systemically important to restoring calm. This solution is problematic for many reasons. In the absence of many new rules, unlimited deposit insurance gives banks a terrible incentive. And the rules needed to dampen those dire stimuli could stifle risk in the economy as a whole.

A deeper solution to this problem lies in understanding the dilemma of uninsured savers and addressing their needs more directly. It is easy to portray the uninsured saver as a reckless risk seeker. who flutters between banks in search of profitability. This caricature does not deserve saving or much sympathy. But the reality is that many uninsured savers face a huge dilemma.

Consider the problem of wages in the private sector, which is more than $9 trillion in annual cash flows in the US only. Large sums of money must be deposited on a regular basis, and this money must be placed in a bank in order to access the payment system. These deposits simply have no alternative other than banks, and are therefore susceptible to banks lending or buying assets. with these large deposits. In this process, all of our paychecks are dependent on the decisions of the bankers, who can take these large, unstable deposits, risk them, and then socialize the losses when we are forced to withdraw deposit insurance.

The case of “payment banks”

The problem of uninsured savers is really a problem of access to the payment system – a system monopolized by central banks and then delegated to banks. The problem of wages is a prime example of this problem, since wage funds must necessarily be kept in banks, where they are exposed to the risks mentioned above.

happy, other countries began to look for ways to solve this problem. V Great Britain, AustraliaAnd Singapore everyone has been innovating and we can learn a useful lesson from their efforts. Basically, there are two possible solutions: allow non-banks access to the payment system, as the UK and other countries have allowed, or create banks that do nothing more than solve this “wage problem”. We prefer the latter.

To solve the problem of uninsured creditors without distorting incentives to take risks, the US should create a special class of banks called a “payment bank” that does nothing but process payments. Their deposit base will be large and potentially volatile, they will be highly regulated (even more so than money market funds), and they will not be able to take on credit or repayment risk. In short, they will accept payroll deposits and other such large B2B transactions and facilitate access to the payment system.

What will be the business model for these payment banks? There are two possibilities: they can make a safe profit by investing these deposits in the Federal Reserve at the federal funds rate, or they can charge their clients a very small fee for facilitating these large payments. Investing large amounts of these deposits for very short periods without risk can generate significant returns, especially in the current environment, and it is possible that some of this income may even be returned to depositors.

While we have characterized this as a wage problem, there are many other economic agents with large, unstable deposits who are just looking to get into the payment system. Consider a $100 million business that has $70 million in annual costs and prudently keeps cash equivalent to monthly expenses in the bank to cover payments. Alternatively, consider starting a venture capital or private equity fund that seeks to raise capital or use capital to acquire companies.

Currently, these funds must be accessed by traditional banks in order to access payment features. Indeed, this is precisely the business model for both Silicon Valley Bank and Bank of the First Republic. But every bank has such clients. Indeed, the broader scope of card payments is Where 9 trillion dollars in card payments must be routed to merchant bank accounts through merchant acquirers – has similar features.

By creating payment banks, large unstable deposits that far exceed any reasonable deposit insurance limit will find a suitable place in a highly regulated bank that carries virtually no credit or repayment risk and can facilitate their transactions. More importantly, the entire banking system will no longer bear the burden of these uninsured deposits and will be able to return to its core function of retail deposits and making sound lending and asset management decisions. And we can avoid lifting the limit on deposit insurance and turning all banks into systemic ones. In some ways, this solution is less ambitious and far more realistic than using stablecoins or central bank digital currency to facilitate B2B payments on alternative payment rails. In many ways, this idea reflects the principles of industrial power. clearing and settlement applied in financial markets to a wider range of payments.

The reality is that the US banking system has become much less dynamic since the global financial crisis. Almost no entrance. while number of US banks may be high compared to many other countries, the truth is that we do not need more traditional banks – we need different types of banks. Crises are terrible things to wasteand it could lead us to a much safer banking system by recognizing the problem of uninsured depositors and creating a home for them.

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