1. What happened?

Silvergate Capital in the US was the first to collapse, done in by its exposure to the crypto industry’s meltdown. Silicon Valley Bank (SVB) was next, killed by the amount and speed of withdrawals by its startup-centred customers.

Then on Mar 12, Signature Bank became the third-largest bank failure in US history, as a surge in customer withdrawals triggered a bank run. A bank run is often a crisis of confidence: When depositors believe their money is no longer safe with that bank, mass withdrawals follow, turning the fear of a collapse into reality as withdrawals overwhelm what the bank can honour.

First Republic Bank also fell victim to the same customer flight that sank its US rivals, with one estimate of potential deposit outflows at US$89 billion. Almost a dozen US lenders tried to prop up First Republic with US$30 billion cash. But the company, which caters to the tech elite, has dropped to an all-time low amid multiple credit-rating downgrades.

2. Inflation, interest rates and the startup tremors

When supply-chain bottlenecks and the Ukraine war triggered global inflation, the US Fed started hiking rates sharply to fight inflation. But the ripple effect went beyond curbing inflation. It also raised the opportunity costs for venture capitalists, which started moving money out of startups to other better-yielding assets. As the venture capitalist river ran dry, startups turned to their money in banks and dumped assets for cash.

For SVB, its importance – and its vulnerability – lie in its customer base: startups. To meet startup withdrawals, SVB was forced to unload its holdings of government bonds at huge losses. This destroyed confidence in the bank, prompting prominent venture capitalists to urge invested startups to get out of SVB.

On one particular day alone, depositors took US$42 billion out.

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To prevent contagion to the banking industry, the US government moved in fast. It set up a new bank and moved deposits there, so the bank can continue to function. But SVB investors holding SVB stock were left high and dry.

The funding drought in the startup ecosystem also . It had taken in deposits from cryptocurrency-related companies, which in turn were hit hard by the collapse of another cryptocurrency lender, Silvergate Capital.

3. Death of a Swiss grand dame

Unlike Signature Bank or SVB, Credit Suisse is a known and respected brand beyond the shores of the US. At the end of 2022, the bank employed over 50,000 people to support its global operations, including 3,500 in Singapore.

For decades, Switzerland’s second-largest bank was on the lips of the super rich and elite who walked the corridors of private banks. But over the past decade, a questionable business model and a string of bad decisions have knocked it off the pedestal of private banking to the point where it has been labelled “the problem child of global banking” by The Economist correspondent Alice Fulwood.

Its missteps include the Greensill bankruptcy, the implosion of US hedge fund Archegos and the Mozambique bribery scandal. It also suffered great reputational damage over claims that it helped clients avoid taxes, defrauded investors, hired private investigators to go after former executives, as well as revelations of its wealthiest clients being involved in torture, human trafficking and money laundering.

4. Too big to fail?

The venerable Credit Suisse was one of 30 banks worldwide deemed too big to fail.

But by later last year, wealthy clients and businesses pulled out over US$100 billion, forcing a major revamp. More nails were driven into the coffin when its largest shareholders started rapping it. The Saudi National Bank, which owns nearly 10 per cent, said it would “absolutely not” inject more capital despite Credit Suisse’s urgent efforts to raise funds.

Credit Suisse’s stock plunged over 30 per cent to a record 1.56 Swiss francs, exacerbating an ongoing exodus of staff and client funds.

The final curtain fell when the Swiss government was forced to step in, orchestrating a merger with archrival UBS (Switzerland’s biggest bank) after its US$54 billion lifeline failed to revive the bank.

The Swiss government feared that letting Credit Suisse fail would trigger implosions in banks across the world. The merger was seen as the best way to restore confidence. But it would not be the happy-ever-after solution. UBS made sure it purchased its toxic older brother for as cheap as it could, aware that years of litigation by various stakeholders could follow.

Amid the manoeuvrings of its merger with UBS, Credit Suisse reveals that it had written down US$17 billion of its Additional Tier 1 bonds to zero.

5. Season finale?

Are the recent bank failures linked? Yes, and no – one didn’t cause the other necessarily, but perhaps accelerated it in terms of timing.

There’s still a lot of uncertainty in the financial markets now, though, and it remains to be seen how things will develop this year.

6. Should we panic?

Perhaps not. In Singapore, the Monetary Authority of Singapore has repeatedly said our trio of banks are “insignificantly” exposed to Credit Suisse. It said the Swiss lender’s Singapore branch has assets amounting to about 1.6 per cent of Singapore’s total banking sector, and that its operations here would not be interrupted or restricted following the UBS takeover.

Private sector economists also believe that Asian central banks are unlikely to be particularly influenced by the banking crisis in the US and Europe, given the region’s small direct exposure to SVB and Credit Suisse. In the immediate term, though, some volatility in financial markets and portfolio flows have not been ruled out, with one key decision to watch being this week’s Federal Reserve meeting on its monetary policy.