Banking Crisis: Credit Suisse Merger Wipes Out $17 Billion in AT1 Bonds22. March 2023
• Binance CEO Changpeng Zhao recently questioned the banking crisis in the United States, highlighting the regular yet costly need to bail banks out using taxpayer money.
• This comes after Credit Suisse’s recent crisis, which saw them announce a merger with UBS Group that will wipe out their AT1 bonds worth over $17 billion.
• JP Morgan has warned that this could lead to a contagion effect across the sector and an exponential increase in double digits for AT1 bond costs.
Banking Crisis in The United States
In the wake of Credit Suisse’s crisis, Changpeng Zhao, the CEO of Binance, in a tweet on March 20, questioned the constant failures of banks and the regular, yet costly, need to bail them out using taxpayer’s monies. He observed that it is incredibly harder for new banks with better ideas to get approved by the Federal Reserve, the United States central bank. His tweet came after the Credit Suisse and UBS Group merger announcement.
Credit Suisse Merger With UBS Group
The merger is set to wipe out Credit Suisse’s additional tier 1 bonds (AT1 bonds) worth over $17 billion. JP Morgan believes this would have a ripple effect on investors and the financial market, warning that it could lead to a contagion effect across the sector. According to JP Morgan, the cost of AT1 bonds is expected to experience an exponential increase in double digits.
Need For Innovation & Competition In The Banking Sector
Binance CEO Zhao’s criticism shows the need for innovation and competition in the banking sector. The difficulty for new banks to enter the market and be required operate like failing banks runs contrary to principles of a “free market,” preventing new and innovative ideas from entering into circulation and offering better services for customers.
JP Morgan Warnings
JP Morgan: decision to write down #CreditSuisse #AT1bonds could lead to contagion for wholesale funding
This situation highlights how important innovation can be when it comes to improving customer service as well as ensuring financial stability within banking sectors around world – especially during times of crises such as these one faced by Credit Suisse currently.