ALEX BRUMMER: Bank lifeboats launched amid US banking turmoil

ALEX BRUMMER: Lifeboats launched as the American banking crisis shows no signs of abating

The £45billion lifeline for Credit Suisse is a signal event. Swiss banking has an aura of mystery and solidity, and a rescue for one of the country’s once most revered lenders, with a heritage going back to 1856, was not meant to happen.

The real question is whether it is part of an oncoming tsunami for European banking as storm clouds blow across the Atlantic.

American banking is in turmoil. Hard on the heels of the failure of Silicon Valley Bank (SVB) and Signature, and the bailout for depositors, comes a multi-billion lifeboat for San Francisco’s First Republic led by heavyweights Bank of America, JP Morgan and Citigroup.

US woes: Hard on the heels of the failure of Silicon Valley Bank and Signature and the bailout for depositors comes a multi-billion lifeboat for San Francisco’s First Republic

Amid speculation that instability on the financial markets might lead central banks to pause the rise in borrowing costs, the European Central Bank (ECB) chose to ignore the turmoil and increase key rates by half a percentage point to 3 per cent.

ECB president Christine Lagarde insisted there could be no trade-off between battling inflation and financial tensions.

The cost of living has to be tackled by raising rates and the ECB has other tools to deal with banking problems. 

Credit Suisse has been rocking for months with enormous outflows from its asset management arm.

Action by the Swiss National Bank was triggered by contagion from the US. The collapses of SVB and Signature, and the wobble at First Republic, unhinged confidence in lightly regulated regional banks and led to a mad scramble for safety.

Politicians and regulators are unwilling to express fears about a systemic failure. But JP Morgan’s celebrated chairman Jamie Dimon had no such qualms.

He told Treasury and US Federal Reserve officials in a meeting a week ago that SVB ‘had potential’ for disruption.

As the saviour of Bear Stearns and, later, Washington Mutual in the great financial crisis, Dimon is regarded as a voice that must be listened to. There is a push in among British officials to put some distance between what has been happening in the US and Europe, and the UK.

SVB’s British arm was able to be sold to HSBC because Bank of England regulators, led by Sam Woods, made sure the London operation was ring-fenced so that cash deposited in London could not end up in the US.

There is a confidence that the storm can be weathered here because of robust regulation. 

The Financial Conduct Authority is less certain. It has written to 291 fringe financial players offering bank-like services, such as money transfers, urgently demanding they fix governance and money laundering weakness or face closure.

In the US, the post-crisis standards of regulation for second-line banks were eased by the Trump administration with the support of senior Democrats and the Federal Reserve.

A ‘silent run’ on banks is what cannot be seen or heard. Queues outside Northern Rock branches in 2007 were real enough – but less recognised was that consumer behaviour was being mimicked by the bigger beasts in the money markets.

Larger UK banks are no longer so dependent on short-term funding.

But the model of the challenger financial groups, some of which are still struggling to obtain a licence, is very different. No one can discount a flight to safety. The Bank of England may well have a tight grip but even the best regulators struggle to turn market tides.

Partners suffer

Considering John Lewis has reported a giant loss, its charismatic chairwoman Sharon White is chipper about prospects.

In spite of losing market share at Waitrose to Aldi and Lidl, customer numbers are rising. 

Heavy investment in competing on price means shoppers can enjoy everyday prices on 300 food items. The Anyday range is proving popular.

White is to push on with her ‘efficiency’ programme. Having taken out £300million of costs there is another £600million to come. Doubtless more partners will be shed.

The worry for John Lewis loyalists is that much-loved choice and service is draining away with the bath water.

Audit quiz

Here is a quick question: what do Silicon Valley Bank, Signature and First Republic have in common, other than tech clients and being bust or nearly bust?

All are audited by Big Four firm KPMG, veteran of previous crises at the UK’s Co-op Bank, Carillion and elsewhere.

Fancy that!