fear of contagion to the sector persists in Europe

If the announcement of the takeover of Credit Suisse by UBS was intended to prevent a further fall in world markets, the success of the operation was far from obvious in the early morning of Monday, March 20. On the Paris Stock Exchange, the CAC 40 index lost 1.4% at the start of the session and elsewhere in Europe, Frankfurt lost 1.3%, London 1% and the Swiss market 1.3%.

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Asia had set the tone: Tokyo ended the day down 1.42% and Hong Kong dropped more than 2.6% at the end of the session. As for the American markets, they were headed for a new decline. Unsurprisingly, European banking stocks were once again heavily sanctioned: UBS fell by 9%, BNP Paribas by more than 7% and Deutsche Bank by 6%, while Credit Suisse collapsed by more than 60%.

Faced with fears of economic fallout, oil relapsed while gold, a safe haven, rose to more than 2,000 dollars an ounce (1,880 euros) for the first time in a year.

Reviews and questions

It is therefore too early to declare the end of the alert. For two main reasons: in Europe, the agreement between UBS and Credit Suisse, if it avoids the worst, arouses criticism, in particular on the treatment of certain bondholders. This raises questions about the exposure of certain banks to the case and the value of similar securities issued by other institutions. In addition, in the United States, several regional banks remain threatened by the crisis of confidence triggered by the bankruptcies of recent weeks, starting with that of Silicon Valley Bank (SVB).

Read also: In the United States, the Fed lends 12 billion dollars to the banking sector to avoid the crisis

The major central banks are also under no illusions: on Sunday evening, they announced an intervention to provide banks with liquidity in dollars. The US Fed coordinated with its counterparts in the Eurozone, Switzerland, the UK, Canada and Japan to offer dollar funding on a daily basis.

This initiative once again highlights the key role of the greenback during financial crises. With each panic movement, the big banks and investors rush to the dollar, drying up liquidity. To compensate, swap lines (currency exchange) between central banks have been gradually put in place since the great financial crisis of 2008. Once a week, these central banks offer liquidity in dollars to the banks of their respective countries. . The intervention announced on Sunday increases the supply of liquidity to a daily rhythm, as of Monday March 20, and “at least until the end of April”. At the start of the pandemic, in March 2020, the same phenomenon had occurred and central banks had already offered liquidity in dollars on a daily basis.

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