She stated that artificial intelligence is expected to affect 60% of jobs in advanced economies and 40% of jobs worldwide within the next two years during an event in Zurich.

In an event organised by the Swiss Institute of International Studies, associated with the University of Zurich, Kristalina Georgieva said, “We have very little time to get people ready for it, businesses ready for it. It could bring a tremendous increase in productivity if we manage it well, but it can also lead to more misinformation and, of course, more inequality in our society.”

Kristalina Georgieva mentioned that the world economy has become more susceptible to shocks in recent years, citing the global pandemic in 2020 and the war in Ukraine.

She also anticipated more shocks, especially due to the climate crisis, but noted that the economy has remained remarkably resilient.

“We are not in a global recession,” stated Kristalina Georgieva, who faced heckling from protesters demanding action on climate change and addressing developing world debt.

“Last year there were fears that most economies would slip into recession, that didn’t happen. Inflation that has hit us with a very strong force is on the decline, almost everywhere,” she added.

Swiss National Bank Chairman Thomas Jordan, who also spoke at the event, stated that the battle against inflation in Switzerland has made significant progress.

In April, inflation increased to 1.4 per cent, marking the 11th consecutive month of price rises within the SNB’s target range of 0-2 per cent.

“The outlook for inflation is much better. It looks that for the next few years, inflation could be really in the same range of price stability. But there is a lot of uncertainty,” Thomas Jordan said.

The post AI hitting labour forces like a ‘Tsunami’, says IMF chief Kristalina Georgieva appeared first on International Finance.

The closure of the 167-year-old banking giant gave the flashback of the 2007-08 horror when Lehman Brothers (1857-2008) went bankrupt. Before the UBS takeover, Swiss authorities pushed for the realisation of a borrowing plan worth USD 54 billion to help the bank stay afloat. However, the investors and customers pulled out their money. Credit Suisse’s monetary outflows topped 10 billion Swiss francs after March 15, 2023, when the bank’s share price dropped by nearly 25% after Saudi National Bank, its largest investor, expressed its inability to provide any more financial assistance.

The declaration resulted in the market price of the bank’s unsecured bonds, set for maturity in 2027, dropping to a low of 33% of their par value on March 15, down from being valued at 90% at the month’s beginning. The situation deteriorated faster and resulted in the Swiss government jumping into the fray.

Why Is It So Important?

Credit Suisse is among the 30 financial institutions known as globally systemically important banks. It had its primary customer base mostly big companies and wealthy individuals.

Credit Suisse was known for its CreditRisk+ model of risk assessment in loans. Its insurance products are popular in the Swiss domestic market. Some 20–40% of its revenue has been from the bank’s private banking services, which have been among its higher profit-margin divisions.

Credit Suisse produced one of the six hedge funds following European stock indices. Apart from having a 30% ownership in hedge fund investment firm York Capital Management, whose products were being sold by the financial institution to its private banking clients. Credit Suisse is also used to manage the financial instruments of the Dow Jones Credit Suisse long/short equity index.

The Zurich-headquartered company was one of the nine global “bulge bracket” banks providing services in investment banking, private banking, asset management, and shared services.

The Bank Was Least Affected During 2007-08 Crisis

Credit Suisse, which had high-profile financial backers like Saudi National Bank, Qatar Investment Authority and Harris Associates, was formed in 1856 to fund Switzerland’s rail system. It also lent money for the country’s electrical grid and the European rail system. It made its transition into a retail banking entity during the 1900s, followed by a partnership with New York-based First Boston in the late 1970s. It acquired blue chip London stockbrokers Buckmaster & Moore In 1987, Bank Leu (oldest Swiss Bank ever) in 1990, Swiss Volksbank in 1993, Winterthur Group in 1997, asset management division of Warburg, Pincus & Co. in 1999 and Donaldson, Lufkin & Jenrette in 2000.

The Wall Street Journal in 2008 reported, “Credit Suisse survived the credit crisis better than many competitors.” Back then, it had USD 902 million in write-downs for subprime holdings and the same amount for leveraged loans. However, it didn’t face the need to borrow from the government level.

However, Its Record Was Always Under The Scanner

Despite being among Fortune Magazine’s ‘Most Admired Companies’, Credit Suisse reportedly offered criminals, corrupt politicians and controversial secret service chiefs a safe haven for their assets.

In 1999, it faced heat from Japan’s Financial Supervisory Agency for “window dressing” (a practice of selling derivatives that are often used by bank clients to hide losses).

In 2006, Credit Suisse acknowledged misconduct on its part in helping Iran and other countries hide transactions from US authorities.

In 2007, two Credit Suisse traders pleaded guilty to mismarking their securities positions to overvalue them by USD 3 billion, avoid losses, and increase their year-end bonuses.

In 2009, Yellowstone Club founder Tim Blixseth sued Credit Suisse as the latter attempted to collect USD 286 million in loan debt during Yellowstone’s bankruptcy proceedings.

In the same year, the US Department of Justice reached a USD 536 million settlement with Credit Suisse over accusations that the bank assisted residents of the International Emergency Economic Powers Act sanctioned countries to wire money illegally from 1995 to 2006.

Forex Manipulation in Europe in 2013, Tax Fraud Conspiracy in the United States in 2014, the 2015 Malaysia Development Berhad Scandal, the 2017 Mozambique Secret Loans Scandal, and Violation of US Foreign Corrupt Practices Act rocked the company’s image.

In 2018, tennis legend Roger Federer was urged by climate activists to break his sponsorship ties with Credit Suisse due to the company sharply increasing its financing for coal businesses during the 2016-2017 period.

In 2019, Pierre-Olivier Bouée, the then Credit Suisse chief operating officer was accused of snooping on another senior executive.

The bank also faced regulatory actions in Switzerland in 2022 for allowing a Bulgarian cocaine trafficking gang to launder cash between 2004 and 2008. In the same year, details of 30,000 Credit Suisse customers were leaked to a German media outlet.

After the Ukraine war broke out, Credit Suisse asked hedge funds and other investors to destroy documents linking Russian oligarchs. The US House Oversight Committee immediately launched a probe into the firm.

And Yes, The Doom Was Predicted

In October 2022, ‘rumours’ on social media projected the demise of the scandal-hit bank, thereby putting pressure on its stocks. The Swiss National Bank started following the situation closely, amid Credit Suisse suffering massive losses in 2021 from the Archegos and Greensill financial scandals.

Credit Suisse offered to buy back USD 3 billion worth of debt, and put Zurich’s Savoy Hotel on sale, apart from assuring its investors that the bank was stable, even though its wealthy clients were moving their assets out of the bank. There were ‘talks’ about a fresh infusion of USD 500 million from Saudi Crown Prince Mohammed bin Salman, but now the bank is history and taken over by its rival UBS.

Conclusion

Credit Suisse was known for its ability to understand the market pulse and restructure its operations as per that. Euromoney’s Global Private Banking Survey recognised the entity as the world’s best private bank in 2012. In the same year, Global Investors branded Credit Suisse as ‘The Best European Equity Manager’.

Credit Suisse also bagged several other prestigious awards, which testified to its ability to stay ahead of its competitors, through its operational proactiveness. However, its never-ending tryst with scams became its ultimate bane.

The post IF Insights: The heavy blows & eventual downfall of Credit Suisse appeared first on International Finance.

The central bank in its 2019 financial stability report, said, “The Swiss big banks Credit Suisse and UBS have slightly improved their capital situation overall, in spite of the moderate deterioration in economic and financial conditions.”

According to FINMA, the multinational investment banks such as UBS  and Credit Suisse need to put in more effort in order to ‘demonstrate that systemically important functions can be maintained without interruption in a crisis’.

The two banks have time till the end of 2019 to prepare their resolution plans, according to several media reports. The Swiss National Bank is responsible for overseeing the country’s financial stability. The bank said that the country’s domestic banks are exposed to continued risks from estate lending and mortgage markets.

UBS and Credit Suisse are Switzerland’s multinational investment banks.

Last year, UBS’ wealth management accounted for more than 55 percent of its total revenues, while Trading division’s contribution has remained stable at around 18 percent.

The bank has directed more focus towards its wealth management business since the financial crisis. That said, Credit Suisse has also focused on expanding its wealth management business in the last few years.

Now Credit Suisse’s wealth management business contributes 40 percent of its total revenues compared to less than 30 percent before the financial crisis.

The post SNB advises UBS and Credit Suisse to strengthen credit planning appeared first on International Finance.

This referendum could have thrown the global financial system into a loop, as it essentially indicates that a major financial hub like Switzerland can radically change the way its banking system works, and could very well pave the way for other countries to follow suit. However, the final vote – more than three fourths of the Swiss voted against it. Although initial exit polls indicated a real chance for Vollgeld – 45% were against it while 42% voted in favour. Thomas Jordan, chairman of the Swiss National Bank claimed that Vollgeld was an unnecessary and dangerous experiment that would damage the Swiss economy.

However, this isn’t the first time a sovereign money initiative has been suggested. So what’s the Vollgeld all about and why have economists and professors recommended to legislators for decades now?

The Vollgeld Initiative

The Vollgeld Initiative has two main components – a 100% reserves requirements for banks and a monetary reform policy. The reserve requirement means all deposits in Swiss Francs would have to be kept in reserves in the Swiss National Bank only – commercial banks would no longer be able to use any of deposits to finance their lending activities like they do now. Swiss money becomes sovereign money, controlled by the Swiss central bank.

Why is sovereign money being sought after? Contrary to money issued by banks, base money issued by the central bank doesn’t have to be repaid, according to a paper by Urs Birchler and Jean Charles Rochet, banking professors at the University of Zurich. The ones pushing the propaganda of the Vollgeld Initiative don’t see currency issued by the Central Bank as debt of the Swiss National Bank, overriding the need to buy securities that would guarantee the value of the currency lent by the SNB.

Surprisingly, there is a sufficient wave of support in favour of the Vollgeld Initiative and there are multiple reasons why. A primary reason for Swiss economists and citizens being in favour of the initiative is the avoidance of bank runs, which is a situation when depositors would like to remove large amounts of their money at the same time. This cannot happen in the current system, as banks seldom have the kind of financial reserves to pay back depositors, and this could result in bankruptcy.

Interestingly, this won’t be the first time that 100% reserves has been recommended. It came up as early as 1933, around the Great Depression and possibly US’ worst financial crisis, by a group of professors at the University of Chicago. They even presented the ‘Chicago Plan’ to President Franklin Roosevelt, who was close to implementing it but was ultimately convinced by a group of American bankers to drop the idea altogether. Even the 2008 financial crisis brought back the topic of 100% reserves by many influential bankers such as Mervyn King, governor of the Bank of England; Wilhelm Buiter, chief economist of Citigroup, Adair Turner, head of the UK Financial Services Authority and Financial Times journalist Martin Wolf. Even the governments of the US, UK, Iceland, the Netherlands and Switzerland have contemplated this initiative so far.

Another school of economists argue that debt-free money would radically change the way banking is done. Supporters of VGI argue that the Swiss National Bank can keep an account of government-approved money, which it has no obligation to repay as its debt-free. These notes could be issued without a counter-party, by distributing it to the Confederation, cantons or to the Swiss directly. This especially comes across as revolutionary as the SNB has done away with the practice of converting Swiss Francs into gold from 2002 – the SNB doesn’t have to maintain gold reserves and foreign currency against the currency it issues. The 100% reserves requirement would imply that Swiss money in circulation coincides with base money controlled by the SNB.

This notion is actually being widely debated by multiple reform groups and finance organizations, most expectedly in a bid to mitigate the power exercised by commercial banks, who the supporters of VGI believe have brought about financial and economic instability.

There are many other reasons what a potential vote in favour of Vollgeld means, elaborated by Birchler and Rochet in their paper.

Why the Swiss should vote in favour of Vollgeld?

Meanwhile, a recent report by renowned business journalist Martin Wolf in the Financial Times elucidates why Switzerland should give the Vollgeld Initiative a serious thought. Wolf, in his report, believes finance needs change and for that, requires experiments. According to a database compiled at the IMF, 147 individual banking crises occurred between 1970 and 2011, affecting small nations like Guinea to even big ones like the USA. Its simple, explains Wolf. Banks create cash, a public good, as a byproduct of their lending. So what happens during a crisis? These bank assets are risky and least safe, at a time when people who have invested or deposited their hard earned cash, need it to remain so. The Vollgeld Initiative can make banks safer – by turning liquid deposits into sovereign money.

Let’s not forget that Thomas Jordan, head of the Swiss National Bank, is not in favour of this shift, which he believes will cause a mini earthquake. Besides, there is no clarity on what this sovereign money will be used for. This move would definitely place a lot of power in the hands of the central bank, but it has to be elaborated how ethical it chooses to stay and keep the interests of the public safe – the very point of creating the Vollgeld Initiative.

Source:

http://www.batz.ch/wp-content/uploads/2017/10/Vollgeld_Summary_en.pdf

https://www.ft.com/content/d27b000e-6810-11e8-8cf3-0c230fa67aec

The post How the Vollgeld Initiative could transform global banking appeared first on International Finance.