US, European banking systems are at serious risk due to rising interest rates

The collapse of Credit Suisse, a 167-year-old institution, is a more significant event for the global financial system than the collapse of Lehman Brothers during the 2008 global financial crisis. Lehman failed since it had losses on bad investments and did not have sufficient capital. Credit Suisse on the other hand was stable and had sufficient capital. It failed due to a run on its deposits caused by fear and panic of its depositors. Even a $50 billion support by the central bank of Switzerland failed to change the sentiment and the bank faced outflows of more than $122bn within three months. Eventually the regulators were forced to merge it with UBS and provide liquidity of $100bn to UBS for support. A few weeks earlier, the US government had to commit to support the deposits of three – Silicon Valley Bank, Signature Bank and Silvergate – which had faced a similar run. The reason why these developments are far more dangerous than the 2008 crisis is that they shows that the sentiment of markets is so weak that even a relatively stable bank, with all the support of the government, could face a run.