In 2011, Carmen Reinhart and Kenneth Rogoff published a book about international financial crises that puts the current banking crisis into some perspective. Their New York Times Bestseller ‘This time is different: eight centuries of financial folly’ was published three years after the bankruptcy of Lehman Brothers on 15 September 2008. Their book presents a detailed analysis of the varieties of financial crises, and guides us through eight centuries of government defaults, banking panics, and inflationary spikes - from medieval currency debasements to the subprime catastrophe. Each time, financial experts have chimed “this time is different” claiming that the old rules of valuation no longer apply and that the new situation bears little similarity to past disasters. However, it could very well be the case that crises do bear similarity to the past. Therefore, today’s key question is: Is the current banking crisis really different?

The problems at the Global Systematically Important Bank (G-SIB) Credit Suisse have shaken up the European banking landscape. It was reminiscent of the initial developments surrounding the financial crisis 15 years ago. Although banks achieved good results in recent years, they remained vulnerable to bad investments and scandals. Investors fear the problems will spread to other banks, leading to turmoil.

In Switzerland, the central bank executed a decisive yet extraordinary bailout to curb the crisis; by transferring Credit Suisse to its larger industry peer UBS. Earlier, there was also turmoil in the US banking landscape. This happened when Silicon Valley Bank (SVB), with thousands of US venture capital-backed startups as customers, collapsed. During the low interest rate era, SVB and its customers generally thrived, but the rising interest rates created challenges for SVB that they could not overcome.

The problems in the US were mostly a result of a bank run fueled by social media and a lack of US regulation on smaller banks. In the end, the entire banking system is based on trust, which both SVB and Credit Suisse quickly lost in a series of events during the last few weeks. As a result, there is continued nervousness in the financial markets. As the saying goes: Trust takes years to build, seconds to break, and forever to repair.

So, how does all this impact our clients and services?

Due to the developments at SVB and Credit Suisse, the banks’ ALM and financial risk management are in the spotlight. Mitigating counterparty credit risk has become of increased importance; to reduce their risks, both banks and corporates will need to increase their bank diversification. Setting up your cash management optimally is important to keeping your business financially sound, so working capital needs to be optimized to reduce funding cost. In addition, the risks which come with interest rate increases and high volatility in financial markets, will need to be properly hedged.

For the solutions to all these challenges, we have both the experts and the appropriate tools for you. In this edition of Zanders Magazine, we highlight some. But since every client is unique and requires a customized solution for the complex issues and considerations they face, we will of course be happy to explain our ability to solve your challenges in person as well!