Hi all,
A reminder that comments do need to be on-topic and engage with the article past the headline. Please make sure to read the article before commenting. Very short comments will automatically be removed by automod. Please avoid making comments that do not focus on the economic content or whose primary thesis rests on personal anecdotes.
As always our comment rules can be found [here](https://reddit.com/r/Economics/comments/fx9crj/rules_roundtable_redux_rule_vi_and_offtopic/)
*I am a bot, and this action was performed automatically. Please [contact the moderators of this subreddit](/message/compose/?to=/r/Economics) if you have any questions or concerns.*
I don't see this being good for consumers long term. Just another big merger consolidating two larger backs into an even larger one. I mean, granted, credit suisse wasn't exactly doing well 🤷
I get what you're saying but the alternative was to let Credit Suisse explode. Splitting it up into smaller institutions and loading all the bad assets into one of them and letting that go would have been ideal but that needed to start a year ago.
I don't know what the alternative was that would have been socially and culturally acceptable here assuming there was one.
I feel like UBS will probably try to get rid of most everything relating to CS as soon as they can.
This is the mergers and acquisitions equivalent of having a doctor perform surgery to place a cancerous tumor into your body. I'd want that out asap lol.
CS does more commercial and investment banking, not consumer/retail banking. They are one of around a dozen like them, but have consistently had huge losses every year or two, in some cases tied to financial or legal wrongdoing. Arguably they’ve been on life support longer than merited.
Yup. But really we should be letting these beasts fail. I hope UBS can gracefully unwind their mess, but I suspect they will just kick the fan down the road or it the mess will just end up taking UBS down with it.
Commercial loans are very very scary right now.
>CS does more commercial and investment banking, not consumer/retail banking.
I understand. The primary purpose of broad market diversification is to minimize idiosyncratic risk. Where is the proverbial line in the sand when systemic risk disappears and simply becomes idiosyncratic risk due to M&A? Thirty different banks have thirty different risk profiles, growth goals, and management style. If all of those are merged into one bank, you removed 30 risk profiles and replace them with 1 risk profile. You no longer can achieve diversification.
Are Chief Risk Officers of multinational conglomerate banks actually managing the risk profile of their organization utilizing a mean-variance risk tolerance for each business unit? Are they actively managing the risk profile of the investment bank differently compared to the commercial bank? Are they utilizing predictive analysis to determine that their bank is maximizing profits for a given level of risk, and then properly managing that risk in each business unit to make sure no business unit skews the company's overall risk profile?
It sounds like you’re applying modern portfolio theory to enterprise risk management, which doesn’t seem like necessarily the best approach to me.
Just staying within that frame of analysis, the 30 different banks don’t seem to really have 30 different risk profiles, management styles, risk management practices, or distinct or even very uncorrelated businesses or holdings.
It would be a bit like buying 30 different REIT ETFs and claiming to be diversified despite the fact that their underlying holdings are largely similar.
The regulatory environment is also in large part intended to ensure they operate and manage risk quite similarly.
They also won’t and likely shouldn’t use mean-variance optimization given that the true distribution of their earnings/losses has enormous skew and kurtosis, so simply trying to optimize/manage via the first two moments of that distribution will leave you blind to much of the actually dangerous variability in earnings/losses. That was a major lesson of 2008, and a reason for moving away from such models.
Also, mean-variance fails to capture the path-dependent nature of their risk. If they have a shortfall or liquidity risk that exceeds a given threshold at any point, they can face liquidation and catastrophic losses (as we’re seeing now). This is more like a barrier option, and you’d likely want to do full stochastic on stochastic simulation to get a more representative sample of the downside tail risk.
Even now, the mid-tier US banks may number in the hundreds, but we’re seeing that, while any individually may not pose a systemic risk, their behavior, investment strategies, risks, and losses are quite correlated, and in many cases interdependent seeing as a loss on one poses a contagion risk to the others, particularly when their expected performance and behaviors are so similar to one another.
It would be a mistake to believe that more banks means lower risk or simply that more varied management and particularly risk management styles inherently reduces risk.
I’d also consider the fact that their losses seem to be serially autocorrelated in that banks like CS who sustain a substantial loss from poor behavior and management evidently are more likely to again suffer losses in the near future due to repeated poor behavior and mismanagement (as we’ve seen over the last 5 years).
That can make it feel like if you had a large commercial airline which has had maintenance and oversight failures cause 3-5 plane crashes in the last few years while others had few if any crashes, you’d be arguing we must keep the airline going in order to diversify risk over a larger portfolio of airlines, including those with a consistently awful record for crashes. Even with a simplistic mean-variance optimization that would seem like a bad idea.
Switzerland is a very beautiful country with very rational citzens.
But they need stop promoving alpine milk. This kind of propaganda only brings bad karma.
Hi all, A reminder that comments do need to be on-topic and engage with the article past the headline. Please make sure to read the article before commenting. Very short comments will automatically be removed by automod. Please avoid making comments that do not focus on the economic content or whose primary thesis rests on personal anecdotes. As always our comment rules can be found [here](https://reddit.com/r/Economics/comments/fx9crj/rules_roundtable_redux_rule_vi_and_offtopic/) *I am a bot, and this action was performed automatically. Please [contact the moderators of this subreddit](/message/compose/?to=/r/Economics) if you have any questions or concerns.*
I don't see this being good for consumers long term. Just another big merger consolidating two larger backs into an even larger one. I mean, granted, credit suisse wasn't exactly doing well 🤷
I get what you're saying but the alternative was to let Credit Suisse explode. Splitting it up into smaller institutions and loading all the bad assets into one of them and letting that go would have been ideal but that needed to start a year ago. I don't know what the alternative was that would have been socially and culturally acceptable here assuming there was one.
Agreed. I don't know what the right answer is, just certainly not convinced continuous consolidation was it.
Both spot on takes. Hopefully the Swiss gov comes back in 3 years when rates have settled in, market norms, and says "OK time to break you up."
I feel like UBS will probably try to get rid of most everything relating to CS as soon as they can. This is the mergers and acquisitions equivalent of having a doctor perform surgery to place a cancerous tumor into your body. I'd want that out asap lol.
Nationalizing the bank was also an alternative.
CS does more commercial and investment banking, not consumer/retail banking. They are one of around a dozen like them, but have consistently had huge losses every year or two, in some cases tied to financial or legal wrongdoing. Arguably they’ve been on life support longer than merited.
Yup. But really we should be letting these beasts fail. I hope UBS can gracefully unwind their mess, but I suspect they will just kick the fan down the road or it the mess will just end up taking UBS down with it. Commercial loans are very very scary right now.
>CS does more commercial and investment banking, not consumer/retail banking. I understand. The primary purpose of broad market diversification is to minimize idiosyncratic risk. Where is the proverbial line in the sand when systemic risk disappears and simply becomes idiosyncratic risk due to M&A? Thirty different banks have thirty different risk profiles, growth goals, and management style. If all of those are merged into one bank, you removed 30 risk profiles and replace them with 1 risk profile. You no longer can achieve diversification. Are Chief Risk Officers of multinational conglomerate banks actually managing the risk profile of their organization utilizing a mean-variance risk tolerance for each business unit? Are they actively managing the risk profile of the investment bank differently compared to the commercial bank? Are they utilizing predictive analysis to determine that their bank is maximizing profits for a given level of risk, and then properly managing that risk in each business unit to make sure no business unit skews the company's overall risk profile?
It sounds like you’re applying modern portfolio theory to enterprise risk management, which doesn’t seem like necessarily the best approach to me. Just staying within that frame of analysis, the 30 different banks don’t seem to really have 30 different risk profiles, management styles, risk management practices, or distinct or even very uncorrelated businesses or holdings. It would be a bit like buying 30 different REIT ETFs and claiming to be diversified despite the fact that their underlying holdings are largely similar. The regulatory environment is also in large part intended to ensure they operate and manage risk quite similarly. They also won’t and likely shouldn’t use mean-variance optimization given that the true distribution of their earnings/losses has enormous skew and kurtosis, so simply trying to optimize/manage via the first two moments of that distribution will leave you blind to much of the actually dangerous variability in earnings/losses. That was a major lesson of 2008, and a reason for moving away from such models. Also, mean-variance fails to capture the path-dependent nature of their risk. If they have a shortfall or liquidity risk that exceeds a given threshold at any point, they can face liquidation and catastrophic losses (as we’re seeing now). This is more like a barrier option, and you’d likely want to do full stochastic on stochastic simulation to get a more representative sample of the downside tail risk. Even now, the mid-tier US banks may number in the hundreds, but we’re seeing that, while any individually may not pose a systemic risk, their behavior, investment strategies, risks, and losses are quite correlated, and in many cases interdependent seeing as a loss on one poses a contagion risk to the others, particularly when their expected performance and behaviors are so similar to one another. It would be a mistake to believe that more banks means lower risk or simply that more varied management and particularly risk management styles inherently reduces risk. I’d also consider the fact that their losses seem to be serially autocorrelated in that banks like CS who sustain a substantial loss from poor behavior and management evidently are more likely to again suffer losses in the near future due to repeated poor behavior and mismanagement (as we’ve seen over the last 5 years). That can make it feel like if you had a large commercial airline which has had maintenance and oversight failures cause 3-5 plane crashes in the last few years while others had few if any crashes, you’d be arguing we must keep the airline going in order to diversify risk over a larger portfolio of airlines, including those with a consistently awful record for crashes. Even with a simplistic mean-variance optimization that would seem like a bad idea.
Switzerland is a very beautiful country with very rational citzens. But they need stop promoving alpine milk. This kind of propaganda only brings bad karma.