For US Lawmakers, Credit Suisse Takes a Back Seat to Bank Turmoil at Home

(Bloomberg) -- For the Biden administration and Congress, the problems facing Credit Suisse Group AG have nothing to do with the US economy.

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American regulators are consumed by the task of steadying their country’s own financial stability following the collapse of three regional banks and as First Republic Bank gets a rescue deal. A banking crisis in Europe seems literally an ocean away.

That much is apparent from the reaction from the White House, lawmakers and US regulators to Credit Suisse’s mounting woes: It’s unrelated to their own turmoil back home.

Treasury Secretary Janet Yellen was not asked once about Credit Suisse as lawmakers on the Senate Finance Committee quizzed her for hours about Silicon Valley Bank and how to protect deposits.

White House Press Secretary Karine Jean-Pierre was at pains on Thursday to say: “I want to be very clear: What we’re seeing with Credit Suisse is a distinct situation. It does not speak to the current economic environment that we’re in.”

While the circumstances are indeed different, nevertheless the mounting difficulties of the banking system across both sides of the Atlantic has raised the inevitable specter of the 2008 financial crisis and the question of whether parallel storms can be kept separate or will at one point converge.

Read more: Banks Rush to Backstop Liquidity, Borrow $164.8 Billion From Fed

The Credit Suisse situation shook global investors and added to the market tumult prompted by the failure of SVB and Signature Bank. Another regional institution, First Republic, is poised to get as much as a $30 billion lifeline from larger US banks.

Despite the reprieve for First Republic, there are indications in the market that the danger has not passed and that the current crisis may grow or morph into a new threat to the financial system.

In the US, data published by the Federal Reserve showed banks borrowed a combined $164.8 billion in the most recent week — $152.85 billion from the discount window, the traditional backstop, and $11.9 billion from a new emergency program launched Sunday.

Those strains threaten to intensify as depositors search for safer havens. Depositors have been moving cash in response to the turmoil, away from US banks.

Read more: Money Market Funds Get Biggest Cash Inflow Since Early 2020

Across the Atlantic, European Central Bank Vice President Luis de Guindos on Tuesday urged lenders to not be complacent. He said that while European banks were less exposed than those in the US to potential strains from rising interest rates, he could not rule out risks to individual institutions or the threat of contagion.

Credit Suisse’s stock suffered its biggest one-day drop on record after a top shareholder ruled out adding to its stake on Wednesday, spooking investors. The troubled lender won a 50 billion franc ($54 billion) credit line from the Swiss National Bank, stemming the erosion of investor confidence and giving executives and government officials in its home country more time to plan their next steps. The bank is in the middle of three-year restructuring.

Jean-Pierre said the US Treasury Department is in touch with its Swiss counterparts about the lender and US officials were “glad” that the Swiss central bank “provided a reassurance in the form of the loan facility yesterday.”

The US Treasury Department on Wednesday said it was actively reviewing the US financial sector’s exposure to Credit Suisse, with officials in close contact with the Fed and European regulators.

Earlier: US Treasury Reviewing US Banks’ Exposure to Credit Suisse

But on Thursday, the focus of Yellen’s testimony was firmly on SVB: “I can reassure the members of the committee that our banking system remains sound, and that Americans can feel confident that their deposits will be there when they need them.”

The secretary said her department was watching for any signs of tightening credit and focused on ensuring financial stability, but acknowledged that regulators would also need to “reexamine our rules and supervision” after SVB’s collapse.

(Updates with details on financial strains to banks in US, Europe, from eighth paragraph.)

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