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Following on from Patrick Jenkins’ excellent Inside Business column “Banking sector implosion tarnishes the lustre of the ‘Swiss finish’” (March 28) I would like to add a few points.
First, a large amount of the Credit Suisse balance sheet on both sides will have been in US dollars, yet the Swiss National Bank, the central bank, was ultimate lender of last resort. Despite SNB’s size and reserves, shoring up Credit Suisse’s investment bank was a big ask. The US Federal Reserve and its swap lines are needed at such times. But accessing such lines likely comes at a price, both monetary and political.
The second point is that investment banks can’t avoid having large dollar positions since Wall Street is the biggest capital market by some margin — partly because US corporates finance through tradeable bonds rather than bank loans, a position that is the reverse of Europe. It is also a fact that the dollar is the biggest reserve and traded currency, again by a large margin. This is a challenge for non-US banks playing in the capital markets in any size. One of the potential outcomes is that non-US players take more reputational, interest rate and liquidity risk.
Third, even US subsidiaries of non-US players are disadvantaged. They need an international holding company structure but that eats capital and they don’t have real access to Main Street’s deposits. US regulators don’t give them an easy ride, quite possibly because they understand these arguments.
In conclusion, as long as Wall Street and the dollar dominate, non-US players will have challenges accessing liquidity, both routinely and in crisis mode, and thus need to tread carefully in dollar capital markets.
Stephen Kingsley
London W8, UK
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