Eamon Quinn: Remedy for bank turmoil means bad news for customers

Prof Stephen Kinsella says there are parallels with the onset of the financial crisis in 2007, but the speed of the collapse of Silicon Valley Bank has been extraordinary by any measure

Federal Deposit Insurance Corporation (FDIC) staffer Igor Fayermark at Silicon Valley Bank's headquarters in Santa Clara, California on Monday, March 13 after the US government intervened to secure funds for depositors. Picture: Benjamin Fanjoy/AP

Just over a week ago, Stephen Kinsella, the professor of economics at University of Limerick, was in Silicon Valley. In the time it took to make a short airport hop, the extent of the crisis enveloping California’s Silicon Valley Bank had emerged.

Taking stock of the global banking crisis at the start of a second week, Prof Kinsella said there were undoubtedly comparisons to be made with the onset of the financial crisis back in 2007, but that the speed of the collapse of Silicon Valley Bank was extraordinary by any measure.

The troubles of Silicon Valley Bank and other US lenders reverberated across the Atlantic. By Sunday night, Swiss banking giant UBS was announcing a €3bn rescue of a weakened Credit Suisse. Even for veterans of the global financial crisis, events were unfolding at breakneck speed.

Hopes that shotgun buyouts, liquidity pump priming, and interventions by authorities in the US and Europe, would bring an end to the turmoil ebbed and flowed through Monday.

Market fears over the burning of a specific group of bank bondholders in the Credit Suisse rescue sparked concerns early on. The focus switched back to the continuing woes of First Republic Bank, another stricken US lender that supposedly had been saved when given access to loans from some of Wall Street’s biggest names and from the US authorities. Shares of First Republic Bank slumped again.

Capital Economics chief global economist Jennifer McKeown told clients that, despite the weekend buyout of Credit Suisse, markets remained “in a febrile state”.

Events unfolding on Monday didn’t look like “a 2007 scenario”, said Jack Allen-Reynolds, deputy chief eurozone economist at the economics consultancy, because European banks were relatively strongly regulated. But it was unlikely that Credit Suisse would be “the end of story” for market disruption, he said.

Meanwhile in Ireland, bank shares rose sharply as AIB and Bank of Ireland clawed back some of their hefty losses of recent weeks.

John Cronin, financials analyst at Goodbody, said the fallout from Credit Suisse and SVB will likely continue to weigh on global markets, even though Irish banks and UK banks didn’t face similar problems.

For Professor Kinsella the breakneck speed of events from California to Switzerland showed that consolidation of banking was back on the agenda. No matter where you live in the world, “the one word comes to mind is consolidation and we teach our students that is always bad for the consumer”, he said.