Credit Suisse crisis with $1.6 billion in losses, towards a banking version of FTX?

Crypto-currency exchange FTX has filed for bankruptcy along with its 130 affiliates, a fact that impacts the entire crypto-currency industry, but a little further down the road in the world of traditional finance, Credit Suisse is facing a deep crisis.

The Swiss-based bank, considered by the Financial Stability Board to be of major global systemic importance, warned today that it expects a loss of up to 1.5 billion Swiss francs ($1.6 billion) by the end of the fourth quarter of the year.

Credit Suisse’s financial problems have been exacerbated by clients withdrawing their assets and investments.

So much so that its division “wealth management“the bank’s wealth management business, which caters to the institution’s most affluent clients, suffered a net outflow of 10 percent of the assets it manages, putting a strain on the bank’s balance sheet, according to a Financial Times report.

The Swiss bank, which is the primary dealer and counterparty in the U.S. Federal Reserve’s (Fed) foreign exchange market, said it was facing an economic and market environment “difficult“.

As a result, Credit Suisse has been forced to resort to cash reserves, falling below certain minimum regulatory requirements. And at its extraordinary general meeting today, it won approval for a capital increase to fund the recovery from what appears to be the biggest crisis in its 166-year history.

A real systemic risk?

In the wake of the FTX collapse, some players are targeting the crypto-currency sector, pointing out that this ecosystem poses a risk to the traditional financial system. Indeed, this is what Federal Reserve Vice Chairman for Oversight Michael Barr recently told the Senate Banking Board.

We are concerned about risks that we are not aware of in the non-bank sector. That obviously includes the crypto-currency industry, but more broadly risks in parts of the financial system where we don’t have good visibility, we don’t have good transparency, we don’t have good data. That can create risks that spill over into the financial system that we regulate.

Michael Barr, vice president for supervision at the Federal Reserve.

It is curious, however, that few people are talking about systemic risk in the midst of the Credit Suisse crisis. It’s only on Twitter that a warning was issued about a possible impact on the global financial system, given the Swiss lender’s deep ties to American and European banks.

Credit Default Swaps on Credit Suisse are skyrocketing. Bank is deeply intertwined with U.S. financial system. We’re not being told the truth on potential for systemic risk. pic.twitter.com/xF9vcaPfdg

– Ponzi Finance (@BP_Rising) October 6, 2022

Regarding the case of FTX, Spanish analyst Alberto Iturralde rules out the possibility of a systemic risk, given that the crypto-currency ecosystem represents only 2% of all assets currently existing in the world.

Since October, there has been talk of a Credit Suisse crisis, given that it lost $4 billion in the third quarter of the year.