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Global stocks sink after Credit Suisse takeover

Investors worry banks are cracking under the strain of unexpectedly fast, large rate hikes over the past year to cool economic activity and inflation.

Le Monde with AP and AFP, March 20, 2023

Putin praises China's willingness to play 'constructive role' in ending War in Ukraine

Xi Jinping heads to Russia on Monday hoping to deliver a breakthrough on Ukraine as Beijing seeks to position itself as a peacemaker.

Le Monde with AFP, March 19, 2023   

Solar energy is being harnessed everywhere (except France)

Thanks to falling costs, easy construction, and flexibility, solar power installations are being built everywhere from China to the United States.

Le Monde by Luc Bronner, March 19, 2023 

US and EU begin negotiations on critical minerals access for EV batteries

European leaders are worried that EU-based energy and auto companies will be shut out or move to the US. They hope the talks will result in one significant exemption for the EU.

Le Monde with AFP, March 10, 2023 

In Rio de Janeiro, rooftop tanning is all the rage

The practice is mostly reserved for women, and is especially popular in suburban outskirts, far from the beach. But it is criticized by dermatologists, who consider it harmful to the skin.

Le Monde by Bruno Meyerfeld (Rio de Janeiro, March 19, 2023

SVB's European ShockwavesSilicon Valley Brings Disruption to Global Finance

Rising interest rates have plunged the financial markets into turbulence. Regional banks in the U.S. are facing bank runs while in Europe, Credit Suisse is on the brink. Is a new global financial crisis coming?

Spiegel by Tim Bartz and Michael Brächer, 17.03.2023

Global stocks sink after Credit Suisse takeover

Investors worry banks are cracking under the strain of unexpectedly fast, large rate hikes over the past year to cool economic activity and inflation.

Le Monde with AP and AFP, March 20, 2023

Global stock markets sank on Monday, March 20, after Swiss authorities arranged the takeover of troubled Credit Suisse amid fears of a global banking crisis ahead of a Federal Reserve meeting to decide on more possible interest rate hikes.

Hong Kong's main index slid more than 3%. Market benchmarks in Frankfurt and Paris opened down more than 1%. Shanghai, Tokyo and Sydney also declined. Wall Street futures were off 1%. Oil prices plunged more than $2 per barrel.

Swiss authorities on Sunday announced UBS would acquire its smaller rival as regulators try to ease fears about banks following the collapse of two U.S. lenders. Central banks announced coordinated efforts to stabilize lenders, including a facility to borrow US dollars if necessary.

The collapse earlier this month of regional lenders Silicon Valley Bank, Signature Bank and Silvergate has sparked fears of contagion across the industry as worried customers withdraw their cash.

The crisis led US authorities last week to promise support for other lenders and depositors, in a move aimed at preventing a run on banks. Also, Wall Street titans including JP Morgan, Bank of America and Citigroup pledged to inject $30 billion into under-pressure lender First Republic Bank.

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However, fears of another financial crisis flared again when the biggest shareholder in Credit Suisse, Switzerland's second-biggest bank, said it would "absolutely not" up its stake a day after its annual report cited "material weaknesses" in internal controls at the firm.

The lender later announced it would borrow nearly $54 billion from the nation's central bank to provide "support."

But that was not enough to lift confidence and on Sunday UBS – Switzerland's biggest bank – said it would buy the firm for $3.25 billion following crunch talks in hopes of stopping a wider international banking crisis. The deal was vital to prevent economic turmoil from spreading throughout the country and beyond, the government said. The move was welcomed in Washington, Frankfurt and London.

Meanwhile, the Fed and the central banks of Canada, Britain, Japan, the European Union and Switzerland said they would launch a coordinated effort Monday to improve banks' access to liquidity, hoping to calm worries.

Focus on Fed decision

But Asian traders tracked Friday's losses in New York and Europe.

Hong Kong fell 3.5%, with heavyweight HSBC off more than six percent on worries about its exposure to risky bonds related to Credit Suisse. Standard Chartered was down a similar amount and Hang Seng Bank lost more than two percent.

The losses came even as the city's de facto central bank said its banking sector had "insignificant" exposure to Credit Suisse. Japan's government also said the country's "financial organizations on the whole have ample liquidity and capital, and the financial market is stable overall."

France's central bank chief said Credit Suisse woes "don't concern" European banks.

Other regional bank shares also hit, with Japan's Mitsubishi UFJ Financial, National Australia Bank and India's ICICI down more than one percent each. Tokyo, Sydney, Seoul, Singapore, Taipei, Wellington, Manila, Mumbai and Jakarta were well in the red.

Shanghai rose after the Chinese central bank cut the amount of cash banks must keep in reserve, hoping to boost the country's economy. Futures in the United States and Europe reversed earlier gains.

"Investors are likely keeping a look over their shoulder for the next disaster in a high-interest rate (and inflationary) environment, so at best we might see markets recover some of last week's losses," said Matt Simpson at City Index.

Traders are now nervously awaiting the Fed's next policy meeting, which ends Wednesday. They were already in a downbeat mood before the latest crisis erupted as they contemplated more rate hikes to rein in stubbornly high inflation.

There is a debate about whether it will continue lifting as the collapse of SVB has been widely linked to the sharp rise in borrowing costs over the past year. Some observers expect at least one more increase but possibly a hold afterward, while there is a growing belief that cuts could be announced before the end of the year, despite prices still rising faster than the Fed would like.

Data showing that bank borrowing from the Fed's discount window hit a record high of more than $150 billion for the week ending March 15 indicated stress in the sector, analysts said.

Oil prices extended the big losses suffered last week on worries about demand as traders fret over a possible recession.

Putin praises China's willingness to play 'constructive role' in ending War in Ukraine

Xi Jinping heads to Russia on Monday hoping to deliver a breakthrough on Ukraine as Beijing seeks to position itself as a peacemaker.

Le Monde with AFP, March 19, 2023   

President Vladimir Putin on Sunday, March 19, welcomed China's willingness to play a "constructive role" in ending the conflict in Ukraine, saying Sino-Russian relations were "at the highest point". His Chinese counterpart Xi Jinping heads to Russia on Monday hoping to deliver a breakthrough on Ukraine as Beijing seeks to position itself as a peacemaker.

The quality of ties between Moscow and Beijing is "higher than the political and military unions of the Cold War era", Putin said in an article written for a Chinese newspaper and published by the Kremlin on the eve of Xi's visit. Putin said he had "high expectations" of his talks with the Chinese leader. "We have no doubt that they will give a new powerful impetus to the whole bilateral cooperation," he added.

Putin hailed "China's willingness to play a constructive role in resolving" the year-long conflict in Ukraine. He said he was grateful to Beijing for its "balanced" stance on events in Ukraine and its understanding of the conflict's backstory and the "real reasons" behind it.

"Russia is open to a settlement of the Ukrainian crisis by political-diplomatic means," Putin assured in the article. However, he insisted on Kyiv's recognition of "new geopolitical realities", namely Russia's annexation last year of four Ukrainian regions, as well as Crimea back in 2014. "Unfortunately, ultimatums to Russia show that (their authors) are far from these realities and have no interest in seeking a solution," he added.

Announcing the trip Friday, Chinese foreign ministry spokesman Wang Wenbin said Beijing would "play a constructive role in promoting peace talks". Freshly reappointed for a third term in power, Xi is pushing a greater role for China on the global stage, and was crucial in mediating a surprise rapprochement between Middle Eastern rivals Iran and Saudi Arabia this month.

Solar energy is being harnessed everywhere (except France)

Thanks to falling costs, easy construction, and flexibility, solar power installations are being built everywhere from China to the United States.

Le Monde by Luc Bronner, March 19, 2023 

Workers have been installing a solar panel on average every two minutes at the massive Al Dhafra solar power plant, south of Abu Dhabi. Launched in 2020 by a consortium of the French EDF Renewables, the Chinese Jinko Power and Emirati public operators, the construction site is nearing completion. With 4 million solar panels and an installed capacity of 2 gigawatts (GW), it is one of the largest in the world. The electricity that it will generate for the next 30 years – enough to power 160,000 homes – has already been bought up.

Solar panels can be seen everywhere: in the middle of desert areas, on private roofs, in parking lots, above warehouses and factories, on lakes, at the edge of highways and on agricultural land as well as in cleared forests. They are now being installed at an unprecedented rate across the globe due to the breathtaking speed at which photovoltaic technology is expanding its reach. According to the International Energy Agency (IEA), solar power is expected to account for 2,350 GW worth of potential power worldwide within four years, surpassing hydroelectricity in 2024, natural gas in 2026 and coal in 2027 in terms of electricity production.

In 2021, the sun – which by its nature can only provide energy during the day – accounted for 1,000 terawatt-hours (TWh) of electricity worldwide out of 27,000 TWh consumed (from nuclear, hydroelectric, wind, etc.). Solar power's share for 2022 is on track to exceed 25%, spurred by the fight against climate change and the rise in energy prices, in a trend that is only expected to continue rising. In its annual Renewable Energy Report, the IAE concludes that despite currently higher capital costs due to raw material prices, large-scale solar photovoltaics is the cheapest option for new electricity generation in a large majority of countries around the world. "The cost of solar has dropped," said Bruno Bensasson, CEO of EDF Renewables. "What had appeared to be an expensive product just for rich countries has become competitive for all the world's economies."

Accelerating the transition

Most major industrialized countries have broken their own records in 2022 or will break them in 2023: in new power plants installed, in energy produced or in projects scheduled for the next few years. "The energy crisis we are experiencing has accelerated the transition to renewables that we were having difficulty making for reasons of climate alone," said Richard Loyen, one of France's leading experts and the president of Enerplan, an organization of professionals in the field.

Take China: 87.4 GW of solar capacity was installed in 2022, per the National Energy Administration, far exceeding the previous record of 54.9 GW in 2021. The figure could have been even higher if supply difficulties had not slowed production. For 2023 and the ensuing seven years, Chinese manufacturers expect between 95 to 120 GW of capacity to be installed annually around the country. Chinese companies have also been investing abroad, as demonstrated by an agreement with Uzbekistan, announced in mid-February, for the development of 2 gigawatts of panels within a few months. Nonetheless, this progress only marginally offsets the impact of carbon-based energy (gas and coal) in this country with enormous energy demands.

The trend has also been stunning in the United States, particularly in states like California and Texas. The Inflation Reduction Act (IRA), championed by President Joe Biden as accelerating the energy transition and promoting the country's reindustrialization, will further intensify efforts. For 2023, the US Energy Information Agency has announced projects representing 29 GW, nearly triple the figures from 2020. A study by Princeton University has suggested that growth will continue, equating to 75 and 105 GW from panels to be installed in 2026 and 2027 thanks to IRA funding, with thousands of potential new jobs.

Nuclear lobby

The same applies to Brazil and India and also across Europe (an additional 41 GW installed). Germany (7.9 GW), Spain (7.5), Poland (4.9) and the Netherlands (4) have experienced particularly significant increases. In the Netherlands, solar accounted for 14% of electricity consumption over the year, a record in Europe, even though the country experiences less sunlight than the continent's southern nations do. "The Netherlands has shown that simple and effective policies can promote the growth of solar," according to the think tank Ember Climate, calling attention to an increase in the number of rooftop installations.

France appears to be moving in the opposite direction. In 2022, 2.6 GW worth of solar panels were installed, a figure lower than that for 2021 (2.8 GW). "In the context of inflation, where many projects seemed to have become stymied, we've finally had a rather good year, even if it is not entirely satisfactory," said associates of Minister for Energy Transition Agnès Pannier-Runacher, in an attempt to put things into perspective. There are several reasons for the lag in France. First, there is the role played by nuclear power, a decarbonized form of energy that has supplied energy companies with a reason for not advancing in solar as quickly as they do in other countries. Then there were the mishaps that France experienced in the 2000s, when the development of photovoltaic panels was subsidized at a considerable cost. This put the Ministry of Finance in a difficult situation and gave the nuclear lobby additional arguments not to make solar energy a priority. It is true that photovoltaic energy accounted for 4.2% of national electricity consumption in 2022, or 4 TWh more than in 2021. At the same time, in order to cope with a shortfall of nuclear power, gas production increased by 11 TWh and imports by 30 TWh, according to RTE, which manages high-voltage lines in France.

The French Renewable Energy Acceleration Bill, adopted in January, marks an important but inadequate step in the view of industry players. To meet France's commitments, 4.4 GW of solar power must be in place by 2023. "To keep up with the pace of the PPE [multi-year energy plan] and terms outlined by the president [Emmanuel Macron] in his speech on energy in Belfort [in February 2022], we must therefore aim for more than 3 GW per year by 2028. It's a challenge, but we can do it," said the office of the minister for energy transition. According to RTE, 16 GW from solar projects were pending installation as of early 2023, a figure that has never before been reached. Consequently, when making its projections, RTE will explore a scenario in which the growth of solar could even exceed 7 GW per year. For its part, the government intends to promote individual usage by households or small businesses, just as the Spanish have done on a major scale. "Rather than having a tariff shield, in the face of the energy crisis, they have promoted home consumption from rooftop solar installations," said Loyen.

A tall order

The other issue is the manufacturing of panels. With solar's emergence as a strategic energy source, the ability to produce its components has become a matter of sovereignty. Yet, according to the IEA, more than 80% of the various components come from China, whether it be silicon, cells, panels or other parts. "China’s investment in clean energy supply chains has been instrumental in bringing down costs worldwide for key technologies, with multiple benefits for clean energy transitions. At the same time, the level of geographical concentration in global supply chains also creates potential challenges that governments need to address," said the IEA. The challenge is a global one. Biden, through the IRA, is seeking to attract investors and relocate some industrial production. India has ambitions to build giant factories. In Europe, the European Commission has launched a solar industry alliance to increase panel production from 4 to 30 GW by 2025.

The hurdle is especially high for the European continent. One of China's leading manufacturers, Longi Green Energy Technology, announced in early February that it was planning a $6.7 billion investment to double its manufacturing capacity. Within a rather short time frame, the new plant could produce an additional 50 GW of solar cells per year. In comparison, Europeans welcomed the announcement by Enel (an Italian energy company at the forefront of renewable energy) of a €600 million investment to support a 15-fold increase in production at a plant in Sicily. By 2025, this plant will be the largest in Europe... with an expected 3 GW.

The challenge of connecting to the grid

EDF Renewables holds Photowatt, a pioneering panel production company in its portfolio, but is looking to sell it. The company is losing €30 million a year, EDF Renewables CEO Bensasson said at his hearing before the parliamentary commission of inquiry into France's energy sovereignty. Projects are being developed, such as the one backed by Carbon, a company that announced on March 3 that it wanted to set up a multi-gigawatt cell and panel factory by 2025 on an industrial site in Fos-sur-Mer, in southern France. Pierre-Emmanuel Martin, one of the company's founders, said, "The Germans and the Chinese are leading the way today. We're starting from a long way back in terms of industry. But solar energy is booming around the world and we want to position ourselves on the international market."

The issue goes far beyond the energy crisis and the consequences of the war in Ukraine. All projections have pointed to a huge increase in global electricity consumption due to the development of battery-powered vehicles and the gradual decarbonization of industry. "The progress underway could increase demand faster this decade than most experts had envisioned," the think tank Ember noted in its latest report. Most of this increase is expected to be absorbed by renewables, especially solar, which is easier to install.

That is, provided that the millions of new panels are able to be connected to electrical transmission networks. Bill Gates, whose first student job was writing software for one of the power grids in the US, sees this as a critical issue for the energy transition. "Right now, over 1,000 gigawatts worth of potential clean energy projects are waiting for approval − about the current size of the entire US grid − and the primary reason for the bottleneck is the lack of transmission," he wrote in late January on his public blog.

US and EU begin negotiations on critical minerals access for EV batteries

European leaders are worried that EU-based energy and auto companies will be shut out or move to the US. They hope the talks will result in one significant exemption for the EU.

Le Monde with AFP, March 10, 2023 

European Commission President Ursula von der Leyen speaks as she meets with President Joe Biden in the Oval Office of the White House on March 10, 2023. ANDREW HARNIK / AP

President Joe Biden and top EU official Ursula von der Leyen announced Friday, March 10, the start of negotiations on granting access to European producers seeking to export critical minerals for EV batteries under a new US program to stimulate the green economy.

"We intend to immediately begin negotiations on a targeted critical minerals agreement for the purpose of enabling relevant critical minerals extracted or processed in the European Union" to qualify for the US government subsidies under Biden's signature Inflation Reduction Act [IRA[ stimulus plan," they said in a joint statement.

Batteries are a vital part of the US plan for a massive expansion of electric vehicle production. The IRA sets aside some $370 billion for tax credits and clean energy subsidies but contains a "made-in-America" requirement for qualification.

European leaders have grown worried that EU-based energy and auto companies will be shut out or move to the United States. The aim of the critical mineral talks will be to provide one significant exemption for the EU.

"Today we agreed that we will work on critical raw materials that have been sourced or processed in the European Union and to give them access to the American market as if they were sourced in the American market. We will work on an agreement," von der Leyen told reporters after meeting with Biden.

In their joint statement, the two leaders stressed that the IRA and new European initiatives meant to mirror the program, such as the Green Deal Industrial Plan, should work in tandem. "Both sides will take steps to avoid any disruptions in transatlantic trade and investment flows that could arise from their respective incentives. We are working against zero-sum competition so that our incentives maximize clean energy deployment and jobs – and do not lead to windfalls for private interests," the statement said.

Seaboard: pioneers in power generation in the country

…Armando Rodríguez, vice-president and executive director of the company, talks to us about their projects in the DR, where they have been operating for 32 years.

More than 32 years ago, back in January 1990, Seaboard began operations as the first independent power producer (IPP) in the Dominican Republic. They became pioneers in the electricity market by way of the commercial operations of Estrella del Norte, a 40MW floating power generation plant and the first of three built for Seaboard by Wärtsilä.

In Rio de Janeiro, rooftop tanning is all the rage

The practice is mostly reserved for women, and is especially popular in suburban outskirts, far from the beach. But it is criticized by dermatologists, who consider it harmful to the skin.

Le Monde by Bruno Meyerfeld (Rio de Janeiro, March 19, 2023

On Elaine Figueiredo dos Santos' rooftop tanning salon, one of the most famous in Rio. BRUNO MEYERFELD / LE MONDE

"Hey, girls, is anyone naked? No one has their little boobs out?!" Amused, Elaine Figueiredo dos Santos asked us to wait a few moments before going up to the roof of her little house. Long enough to make sure that her rooftop, on the skirt of a mountain dotted with tropical bushes, was ready to welcome a male journalist. Usually, men remain strictly prohibited.

It was almost 11 o'clock in the morning, on a Sunday in March, and Rio de Janeiro was baking under a sweltering summer sun. But Elaine's rooftop terrace was crowded: about 20 women in bikinis, lying on deck chairs, were offering their skin to the burning rays. Some were on their stomachs, others on their backs. Young employees passed by to spray them with cold water, under the watchful eye of the proprietress.

In Realengo, a working-class district in western Rio de Janeiro, lajes de bronzeamento ("tanning slabs") have become popular venues for Cariocas (women from Rio) to bask in the sun. At 47 years old, Elaine runs one of the city's most famous lajes, painted and decorated in green, her favorite color. Around here, the "boss" is known by her nickname, Nani Chicleteira (meaning "Nani Gum-Chewer").

A grail called 'marquinha'

"I've always loved to sunbathe. My friends would ask me if I could help them get a good tan. That's how I decided to open this place five years ago," said this cheerful woman, born and raised in Realengo. Success came quickly: Nani (who charges 50 reais, equivalent to €9, per session) employs six assistants and has to turn people away on sunny days. "When there's a line, we hand out entry tickets in order of arrival!"

"Nani Gum-Chewer" does not just provide deck chairs. What her Carioca clients want first and foremost is to get a marquinha ("little mark"), the thin pale tan line left by a bikini. A kind of natural tattoo, the marquinha is all the rage at Rio's parties and beaches, as well as in many other parts of Brazil.

It requires strategy. To obtain the perfect marquinha, Nani has her technique. She makes bikinis out of adhesive tape (called a fitinha), to be stuck directly on the clients' skin, and rubs them with a homemade cream containing paraffin, a petroleum derivative that accelerates tanning. "In just one hour, we get the result of a whole day in the sun!" Nani proclaimed proudly.

'It has become a social institution'

In Rio alone, there are said to be several hundred of these tanning rooftops. "Walk around Realengo, you'll see that 80% of women have a marquinha," said Tatiana, 41 years of age, who came to enhance her "little mark" at Nani's place. "It's super sexy, men love it! Today, everyone wants one: black, white, old, young, fat, skinny... For me, it's impossible to go out without my marquinha!"

It is difficult to ascertain the origin of this trend. According to some, the first lajes appeared 20 years ago in the rural state of Goias, in central western Brazil, before spreading to the coasts. In any case, it has exploded since 2017 and the release of the famous music video "Vai Malandra" by Anitta. The superstar of Brazilian funk appears in the video dancing at a rooftop tanning parlor, her body covered with a tiny bikini made of tape.

In six years, the phenomenon has become increasingly professional. Some laje owners have become famous businesswomen, such as Erika Romero Martins, known as "Erika Bronze." Also from Realengo, this 40-year-old has become a key player in the industry, with 10,000 reported clients, 344,000 followers on Instagram, and her own line of bikinis and tanning products. She was the person Anitta contacted for a place to shoot "Vai Malandra."

"The —laje— has become a social institution," said Euler David de Siqueira, a sociologist at the Rural University of Rio, one of the few researchers who have studied the phenomenon. "The rooftop tanning parlor is a key place for women from the outskirts of the city who don't have access to the beach, which is too far away." Indeed, Realengo is over 50 kilometers from Copacabana, a distance that takes two hours to travel.

'The elite prefers to repress the culture of the peripheries'

The marquinha is both an aesthetic and a social marker. "In addition to the 'sexy' aspect, the women of the favelas can show that they also sunbathe, that they have time to take care of their bodies and have access to leisure activities. We can read it as an affirmation that the privilege of tanning is not the exclusive domain of the rich and the Whites," said Siqueira.

In spite of its popularity, the practice of marquinha is still frowned upon. Dermatologists are up in arms against this trend, which they consider harmful to the skin. They warn of the risks of paraffin, sun exposure, and especially ultraviolet radiation lamps – available at many rooftop parlors – which are used when the weather is cloudy. This is prohibited by Brazilian law, which forbids the use of UV equipment for artificial tanning.

'Most of these women are working in a totally illegal manner. The police can come at any time to end their business and throw them in jail.' José Dimas Marcondes, lawyer.

"The result of this unfair law is that most of these women are working in a totally illegal manner. The police can come at any time to end their business and throw them in jail," said José Dimas Marcondes, a lawyer for many rooftop owners in Rio. "Instead of integrating and helping the phenomenon, the elite prefers once again to repress the culture of the Black and poor peripheries, as was the case with samba, capoeira or funk."

Nani Chicleteira makes sure to take the greatest precautions, with the sun as well as with UV. Her protocols include careful examination of the skin, timed and limited tanning time, and mandatory use of sunscreen. "I am very careful with the sun and with UV. I don't let the girls tan for more than an hour. I prefer to send them home all white rather than all burned!" she said. Her wall is covered with about twenty framed diplomas and certificates in dermatology, cosmetology and first aid.

"We are described in the media as agents of cancer, while we are just entrepreneurs who create jobs and beauty," said Nani Chicleteira, who also offers training for women who want to open their own rooftops. The battle for the marquinha has just begun, "and we will win it!" said Nani. In Rio, the summer is almost over.

Cooperate with objective and ethical thinking…

SVB's European ShockwavesSilicon Valley Brings Disruption to Global Finance

Rising interest rates have plunged the financial markets into turbulence. Regional banks in the U.S. are facing bank runs while in Europe, Credit Suisse is on the brink. Is a new global financial crisis coming?

Spiegel by Tim Bartz and Michael Brächer, 17.03.2023

It’s not often that central bank executives directly inform the public at large about what they discuss behind closed doors. But Thursday saw one of those rare moments. Christine Lagarde, president of the European Central Bank (ECB), went before the press in Frankfurt to announce that it was bumping up interest rates by half a percentage point, just as it had in February.

Unusually, though, Lagarde made clear that the decision had not been unanimous. She said that of the 26 members of the bank’s Governing Council, there were "three or four that did not support the decision" to raise rates and would have preferred to wait and see how the situation in the banking sector would develop. As she made clear: "It’s not business as usual."

Lagarde’s noteworthy comments came on the heels of several days of turbulence on global capital markets that awakened ominous memories of autumn 2008 and the ensuing financial crisis. A number of pressing questions have suddenly arisen, and the press conference held by the ECB president did little to change that: Whether the markets can be restabilized; whether more banks will start wobbling; whether we are facing a new crisis.

It all began a week ago with the collapse of the Silicon Valley Bank (SVB) in California, a financial institution known in the startup scene, but which most average investors had never heard of before. The bank experienced rapid growth in recent years, but completely misjudged the consequences of the recent interest rate increases and was facing collapse as its panicked clients rushed to empty their accounts.

Following a series of emergency meetings, American financial authorities were forced to do something a number of regulatory and liquidation provisions had been designed to prevent: rescue a bank with government help.

Shortly afterward, U.S. President Joe Biden spoke to the country: "Americans can have confidence that the banking system is safe," he said on Monday. "Your deposits will be there when you need them."

They were statements reminiscent of pledges made by other leaders during the last crisis. Then-German Chancellor Angela Merkel told her compatriots: "Your savings are secure." Mario Draghi, Lagarde’s predecessor at the ECB, was even more dramatic: "Whatever it takes," were his words.

“Americans can have confidence that the banking system is safe. Your deposits will be there when you need them."

U.S. President Joe Biden

Despite Biden’s efforts, though, stock markets around the world plunged this week, with bank shares bearing the brunt of the slaughter. Investor trust eroded by the minute, and even German financial institutions, like Deutsche Bank and Commerzbank, saw their stock prices temporarily plummet into the abyss.

The situation at Credit Suisse then provided the cherry on top of this troublesome week. For years, the Swiss bank has been stumbling from one homemade scandal to the next. Once a beacon of the Alpine banking industry, the institution burned through billions with bad investments in addition to providing financial services to corrupt politicians, war criminals, human traffickers and drug dealers. In the fourth quarter of 2022 alone, wealthy and concerned clients withdrew 107 billion francs from the financial institution. The exodus has continued this year.

Founded in 1856, Credit Suisse is intricately linked internationally and considered "too big to fail" – and is now seen as the greatest threat currently facing the global financial system. In an effort to plug the gap, Credit Suisse last October turned to the Saudi National Bank for fresh capital, an ignominy for a country that sees itself as a bastion of stability and political independence. The Swiss still haven’t gotten over the trauma of Swissair’s collapse in 2001 and the 2008 bailout of its largest bank, UBS, the headquarters of which lie across Zurich’s Paradeplatz square from Credit Suisse.

With its 10-percent holding, Saudi Arabia is now Credit Suisse’s largest investor, but the Gulf country’s financial elite is clearly not entirely pleased about that fact. In a televised interview on Wednesday, Saudi National Bank President Ammar Al Khudairy ruled out sending additional cash to Switzerland, saying it was "a regulatory issue" – only to then add: "I can cite five or six other reasons."

He had hardly finished speaking before Credit Suisse stocks fell off a cliff – to the point that the Swiss National Bank had to step in. Credit Suisse "meets the capital and liquidity requirements imposed on systemically important banks," the SNB said in a public statement. Such statements are only made when the financial system faces a systemic danger.

And Credit Suisse is, in fact, well endowed with capital and securities that can quickly be sold off if necessary. But once customers lose trust and begin to abandon a bank en masse, survival can quickly be at stake – as happened in faraway California.

Overnight Bailout

Just how acute worries have become about Credit Suisse could be seen overnight from Wednesday to Thursday. The SNB quickly put together a package of 50 billion francs (the equivalent of 51 billion euros) to boost Credit Suisse’s liquidity in case customers continued to withdraw their assets. No details were provided regarding the conditions attached to the liquidity injection, but they were likely generous. As a sign of strength, the beleaguered bank also announced it was buying back up to 3 billion francs worth of debt.

"Without SNB intervention, Europe would have had its own Lehman moment," says Volker Brühl, the managing director of the Center for Financial Studies who was active as an investment banker during the 2008 financial crisis. And the move produced the desired results for now: Credit Suisse share prices stabilized on Thursday, as did those of most other European financial institutions. In Frankfurt, Lagarde assured that "the euro area banking sector is resilient, with strong capital and liquidity positions" – only to then add: "In any case, our policy toolkit is fully equipped to provide liquidity support to the euro area financial system if needed."

It remains unclear, though, whether a Lehman moment may ultimately materialize anyway, and what the consequences of the sudden panic on the markets might have for the real economy. "These events could very well lead to a recession," says economist Tiffany Wilding from Allianz subsidiary Pimco, one of the largest investors in the world.

A man walking out of the Lehman Brothers building in September 2008 after losing his job: "Without SNB intervention, Europe would have had its own Lehman moment."

The latest signs of instability come just as it seemed the global economy had finally managed to get past the coronavirus pandemic and learned to live with Russia’s invasion of Ukraine. Furthermore, the banks – which were responsible for triggering the financial earthquake of 2008 – seemed solid, aside from Credit Suisse. Even longtime laggards like Deutsche Bank and Commerzbank have been earning billions in profits of late, thanks to a favorable climate.

They have profited from state aid to industry, a program that prevented large bankruptcies. And banks have also been able to borrow money from the ECB for the last several years without having to pay it back completely. And since the recent reversal in interest rate policy, they have been able to rake in billions without risk by parking their customers’ savings at the ECB.

Lagarde’s Thursday announcement that the ECB was raising its key rate by half a percentage point is yet another windfall for the banks. Deposits with the ECB now earn 3.5 percent, translating to additional earnings in the three-figure billions.

That is the positive side of the interest rate hikes that Lagarde, her U.S. counterpart Jerome Powell and others have introduced. Initially, they had underestimated the inflationary pressures that began accumulating in the real economy in 2021. But ever since Russia’s invasion of Ukraine and the resulting explosion in energy prices, they have been combating rising prices with a rapid series of interest rate increases.

The strategy pursued by Lagarde and Powell has yet to bear fruit when it comes to getting inflation under control. But the downsides of their monetary policy are becoming increasingly clear: Rapidly climbing interest rates weigh on stocks and bonds, threaten the investment plans of industrial corporations, hamstring real-estate markets and drastically limit the financial flexibility available to governments. The capitalist system, which is built on a foundation of debt, is under permanent duress.

"This is one price we’re already paying for years of easy money," wrote Blackrock CEO Larry Fink, founder of the world’s largest asset management company, in his annual letter to investors this week. The interest rate increases, he wrote, "was the first domino to drop." The question, he continued, is whether other dominoes are now to come.

The shift toward rising interest rates marks a radical departure from paradisiacal conditions, when the world was awash in cheap money and barriers to taking on debt were low. It was a time when business models such as the one pursued by Silicon Valley Bank found great success – until they didn’t any longer.

The San Francisco-based bank – the 16th largest in the U.S. when ranked by asset value – was at the center of an elite group of tech entrepreneurs and venture capitalists. A number of well-known startups held company and payroll accounts at SVB, flooding it with cash. The bank also accepted stakes in growth-stage startups as loan collateral. It was the financial industry groupie in digital La La Land.

It was a risky strategy, and it worked as long as new money was being injected into startups. But since the advent of inflation and rising interest rates, investors are no longer quite as free with their money. Californian tech firms have laid off tens of thousands of workers as liquidity has dried up.

Many young companies shift their money between accounts in the search for the best interest. Banks, by extension, must invest their customers’ money smartly so they can offer the best conditions.

SVB proved unable to do so. The startup stakes on the banks’ books lost significant amounts of money. And even worse were the investment mistakes made by CEO Greg Becker – in part because there was no one at the bank to look over his shoulder. For several months, the bank did without a chief risk officer, a situation which opened the door for poor investment decisions.

Becker invested his clients’ money almost exclusively in long-term U.S. government bonds. Such bonds are extremely safe, but they don’t produce much interest. And the longer the periods of such bonds are, the more difficult the situation becomes for banks when their customers begin demanding higher interest rates on their savings.

SVB could no longer navigate its way out of this corner. In order to quickly obtain cash, the bank had to sell its bonds – at a loss of $1.8 billion relative to purchase price.

That, too, is a bit of collateral damage that comes from rising interest rates: As the rates rise, bonds lose value. In the U.S. alone, banks are sitting on potential bond losses worth $620 billion. That’s not really a problem as long as they don’t have to sell those bonds and cement the losses – as SVB was forced to do.

"I understood that we had 72 hours to come up with a plan to address this catastrophe."

Anna Eshoo, Democratic Congresswoman for Silicon Valley

In Germany, the country’s Sparkassen savings banks were forced to write off 7.8 billion euros in 2022. But because their customers are frugal and stable, the institutions can simply hold onto their bonds for a couple of years until they mature and they can recoup the purchase price. They have the luxury of simply waiting out the potential losses.

SVB, however, didn’t have that luxury. Its attempt to balance out the loss by raising capital failed, triggering a chain reaction. SVB shares tanked and customers began pulling out their money – an unfathomable $42 billion just on Thursday of last week. A good, old-fashioned bank run right in the heart of Silicon Valley.

The panic was fueled by the fact that the Federal Deposit Insurance Corporation (FDIC) only guarantees up to $250,000 in the event of a bank failure. But 97 percent of SVB’s customers, most of them startup entrepreneurs, had far more than that in their accounts. Fears quickly spread to other financial institutions and the U.S. government was forced to intervene.

"I understood that we had 72 hours to come up with a plan to address this catastrophe," said Anna Eshoo, the Democratic Congresswoman who represents much of Silicon Valley in the House of Representatives, in comments to the Financial Times. She compared the collapse of SVB with a magnitude 7.9 earthquake.

A Blank Check for the Startup Elite

And the government delivered. Holders of SVB stocks and bonds lost their investments, but the FDIC guaranteed the deposits of all SVB customers, including accounts larger than $250,000. And the same guarantee was extended to other troubled institutions like First Republic and Signature Bank, the latter of which has now closed its doors.

In addition, all U.S. banks are allowed to deposit their bonds with the Federal Reserve as collateral for one year at cost, and not at their significantly lower market value, in order to obtain fresh cash – a concession reminiscent of 2008.

The blank check issued to the West Coast startup elite, though, is now fueling political conflict, angering Republicans who have already become radicalized. According to James Comer, the Kentucky Republican who chairs the Oversight Committee in the U.S. House of Representatives, the problem wasn’t the lack of regulation, poor financial decision making or panicky customers, it was the bank’s "wokeness," leading it to put too much emphasis on environmentally friendly investments.

Even Donald Trump Jr. made a desperate grab for the beloved spotlight he once bathed in, tweeting "SVB is what happens when you push a leftist/woke ideology and have that take precedent over common sense business practices." He ran out of characters before he could mention that it was his own father who loosened tighter regulations for smaller banks.

In fact, though, stakeholders like SVB CEO Becker were long ago able to convince politicians and regulatory authorities that their bank was too inconsequential to undergo the regular stress tests undertaken by the Federal Reserve. Those tests now apply only to institutions with balance sheets of $250 billion or larger – a volume that is met only by a handful of Wall Street giants like JP Morgan Chase and Citigroup.

That, European financial overseers have told their U.S. counterparts, was a mistake. As has become clear, even regional banks like SVB and First Republic are "too big to fail."

It is a dilemma for Biden. With just a year and a half to go before presidential elections, he is faced with the need to protect a key industry in the U.S. economy. And representatives of that industry are fully aware of the predicament in which Biden currently finds himself, an awareness that manifested in intense lobbying efforts for the president to fully guarantee SVB deposits. "This is the U.S. versus China. You can’t kill these innovative companies," one of those lobbyists is quoted anonymously as saying to the Financial Times.

It is a rather grotesque sight to watch Silicon Valley bigwigs – who otherwise have a distinctly anti-state, libertarian bent – plea for help from the government. It is also rather ironic that the speed with which SVB and the other banks collapsed is a product of digital advancements made in Silicon Valley. Whereas it used to be that weeks might pass before headlines about financial problems would trigger a bank run, rumors and concerns now spread at the speed of the enter button on a social media post. It was, said Patrick McHenry, chair of the House Financial Services Committee, "the first Twitter-fueled bank run."

The power that social media can have on the financial markets was on full display back in 2021. That year, social media influencers called on followers to buy stocks in companies like Gamestop, driving up their share prices. This time, it was the reverse phenomenon. "The speed of the world has changed,” tweeted Sam Altman, head of the San Francisco-based company OpenAI. "Things can unwind fast. People talk fast. People move money fast."

The SVB failure was also stoked by influencers. "If you are not advising your companies to get the cash out, then you are not doing your job as a Board Member or as a Shareholder," tweeted Mark Tluszcz, CEO of the investment company Mangrove in reference to SVB. The tweet may, however, have been fueled by a bit of self-interest: Mangrove is reportedly interested in a British SVB subsidiary.

The herd instinct phenomenon isn’t limited to Silicon Valley. After the SVB bankruptcy, the social media crowd identified New York’s Signature Bank as the next shaky candidate. The bank had been betting on the cryptocurrency business, which came under considerable pressure after the bankruptcy of the scandalous FTX exchange. Less than 72 hours passed before a problem turned into an existential crisis. The bank’s financial cushion shrank by $10 billion within hours. To get the panic under control, New York’s financial regulator closed the bank so quickly that even its senior management was taken by surprise.

The fact that Signature, of all banks, has become the second victim of the new banking crisis, holds a double irony: Barney Frank, the longtime former Congressman with the Democratic Party who helped shape the new financial regulations after the 2008 crisis, is a member of Signature’s board of directors. And he, too, was caught off guard by the run on the bank, as he was forced to contritely admit.

In light of the events, central bank heads like Lagarde and her U.S. counterpart Jerome Powell, in particular, now find themselves in an almost unresolvable dilemma. They are determined to continue fighting the stubborn inflation they have tolerated for too long by raising interest rates. For years, they had given the economy breathing room by keeping key interest rates low and buying up bonds on the capital market. Now, though, if they continue to raise interest rates, the already critical situation could escalate.

Events in London this past autumn underscored how quickly things can spiral out of control. The British government caused the prices of its government bonds to plummet with half-baked tax-cut plans and nearly drove British pension funds into bankruptcy. The Bank of England had no choice but to switch to emergency mode – and return to loose monetary policy despite high inflation. The concerns about the financial system were too great.

In the U.S., Powell could soon shift down a gear in the fight against inflation and not raise interest rates for the time being. Many on the capital markets are now expecting interest rates to be cut in the late summer if the economy weakens.

Lagarde isn’t that far yet. But the ECB president was also more cautious on Thursday than recently about further interest rate hikes. It was true, she said, that the fight against inflation, which had long been neglected, remained a priority. In the future, however, prices and other data would determine the central bank’s policies more than ever.

"I was around in 2008, so I have clear recollection of what happened and what we had to do," she said. But her mien also seemed a lot more serious than usual.