In a recent article by NRC Handelsblad, Casper de Vries, Professor of Monetary Economics at Erasmus School of Economics, gave his opinion on the instability in banking. De Vries is also Council member at the Netherlands Scientific Council for Government Policy. The Netherlands Scientific Council for Government Policy (WRR) is an independent advisory body for government policy. Their task is to provide science-based strategic policy advice to the Dutch government and Parliament on strategic issues that are likely to have significant long-term social and political consequences.
Shortly after Silicon Valley Bank's failure, Swiss bank Credit Suisse was acquired by UBS, with guarantees from the Swiss government. However, this takeover did not respect the legal hierarchy of creditors. Lagging bondholders got nothing, while shareholders saw their shares in Credit Suisse converted to shares in UBS. The internationally agreed order - shareholders take the risk first, then bondholders - was thus violated.
'So firm action was taken to prevent the financial instability from spreading like an oil slick. The question is whether sufficient attention was paid to the long-term stability of the financial system,' says the professor. In such periods of instability, it is easy to choose between two sub-optimal situations. 'That is why it is extra important to work on and think about the resilience of the financial system precisely in calm times,' De Vries adds.
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You can download the full article from NRC Handelsblad, 3 April 2023, above.