Counterparty Risk Management in Focus
An abrupt end to the era of low interest rates and subdued inflation exposed the vulnerability of some banks and underlined why counterparty risk continues to rank highly on corporate treasury’s risk agenda. TMI asks whether today’s data-driven world has added to the challenge or offers the ultimate solution to mitigating it.
The banking crisis of March 2023 that brought down three US banks – Silvergate, Silicon Valley (SVB) and Signature – and caused the demise of Credit Suisse will, with luck, prove to be only a faint echo of the global financial earthquake of 2008. A prompt and targeted damage limitation exercise appears for now to have been successful, with the Swiss bank entering a shotgun wedding with rival UBS and a swiftly completed deal for HSBC to acquire SVB’s operations in the UK.
Across the Atlantic, the Federal Reserve engineered significant US dollar liquidity measures in co-ordination with other major central banks to calm volatile markets. Meanwhile, another vulnerable-looking US regional bank, San Francisco’s First Republic, was rescued by 11 major banks that collectively provided a lifeline of up to $30bn.
There were, nonetheless, concerns that a domino effect could see the industry’s casualty list extend to major names. In the days following SVB’s collapse, there were reports that nervous US bank customers had moved their deposits from small and midsize regional banks to the perceived safety of major names such as Bank of America, Wells Fargo and Citigroup on the basis that they are “too big to fail.”
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