March 22, 2023
OGR Partner David Vavra gave a short interview to Hospodarske Noviny, a leading Czech economic media outlet about the current banking crisis.
For those who don't speak Czech, here is a short English-version summary:
"The solution to the situation surrounding Credit Suisse went essentially smoothly and in a standard way. The problems of this bank, related to its specific business, are not directly related to the broader problems of medium-sized banks around the world. In the case of American banks, I could imagine a more systematic and smoother solution that would not necessarily result in their collapse. In Europe, banks have access to liquidity - if they have a sufficiently creditworthy portfolio - almost automatically. Specifically, in the case of the SVB, it was not a problem with the business model or solvency, but only a problem with managing liquidity and interest rate risks on the bank's balance sheet. Temporarily, it would probably have been better to solve this issue through a liquidity loan from the central bank against government bonds, of which SVB had plenty. However, it is possible that liquidity problems would have persisted and over time it could have become insolvent anyway. But that would have been some time in the future, and it might not have created a chain reaction like the one we are experiencing now.
Banks with good business models and quality balance sheets, especially in Europe, should not have any more problems. It seems that central banks are willing to provide them with sufficient liquidity loans. However, in the long term, we may need to rethink the entire functioning of the banking sector.
The current events will have only a negligible impact on interest rate decisions. Going forward, banks - both commercial and central - should require more sophisticated stress scenarios, combining macroeconomic with financial risks not based on past experience, but on an analysis of possible future scenarios."
You can find the original interview here: https://archiv.hn.cz/c1-67185350-anketa-hn-je-spojenim-dvou-nejvetsich-svycarskych-bank-riziko-krize-zazehnano