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Gareth Vaughan on Credit Suisse & the trinity, banks as government contractors, an unwanted trifecta, choosing class war over financial stability, and personal bank accounts at the central bank

Public Policy / analysis
Gareth Vaughan on Credit Suisse & the trinity, banks as government contractors, an unwanted trifecta, choosing class war over financial stability, and personal bank accounts at the central bank

This Top 5 comes from's Gareth Vaughan.

As always, we welcome your additions in the comments below or via email to And if you're interested in contributing the occasional Top 5 yourself, contact

See all previous Top 5s here.

It has been a big couple of weeks in banking globally. And that's where this Top Five focuses.

1) Inside the UBS takeover of Credit Suisse.

In massive, massive news for global financial markets and the international banking sector, UBS agreed was forced to takeover its troubled Swiss rival Credit Suisse last weekend. The news is massive because of the sheer scale of the two Swiss banking giants, and concerns Credit Suisse was doomed amid fears the impact this might have on global financial markets.

The Financial Stability Board, an international body that monitors and makes recommendations about the global financial system, features both Credit Suisse and UBS on its list of 30 global systemically important, or too big to fail, banks.

Forbes has background here on what went wrong at Credit Suisse. It'd be fair to say a fair bit.

Though the collapse of SVB and Signature put a spotlight on Credit Suisse, the three’s problems aren’t connected. Credit Suisse has been involved in multiple scandals that have rattled investors in recent years, including the mismanagement of funds, which was uncovered in its 2022 financial report. The bank closed the 2022 fiscal year with a loss of nearly $8 billion, its biggest loss since the 2008 global financial crisis. The bank was convicted in June 2022 of failing to prevent money laundering by a Bulgarian cocaine trafficking gang. The Swiss government claimed the gang washed millions of dollars through the bank and fined Credit Suisse $2.1 million and ordered it to pay the Swiss government $20 million. In March 2022, a Bermuda court ruled the bank owed former Georgian Prime Minister Bidzina Ivanishvili and his family around $500 million in damages from Credit Suisse’s local life insurance company. The court decided former Credit Suisse adviser, Pascale Lescaudron, committed a long-running fraud against the family. Though Credit Suisse appealed the decision, it believes the case will cost around $600 million. In 2020, Credit Suisse’s Chief Executive Tidjane Thiam was forced to resign after it was unveiled the bank hired private detectives to spy on its former head of wealth management once he left to join a rival bank. Other scandals also contributed to what Peter Boockvar, chief investment officer of Bleakley Financial Group, told CNN was Credit Suisse’s “slowing-moving car crash.”

The Financial Times published a rollicking take on how UBS was forced by what it calls the Swiss trinity to save Credit Suisse over a frantic weekend of deal making. The trinity is the Swiss National Bank, regulator Finma and Minister of Finance Karin Keller-Sutter.

There were clearly some big personalities and people used to getting their own way involved. These included Colm Kelleher, the Irish UBS Chairman whose St Patrick's Day and Six Nations rugby viewing plans were disrupted, meaning he only managed one pint of guinness. And Ammar Al Khudairy, Chairman of Credit Suisse's largest investor Saudi National Bank, whose comment he would “absolutely not” put any more money into Credit Suisse probably sealed its fate.

The FT notes the;

...frantic weekend of deal making ended in a storied 167-year-old bank being subsumed into its fierce rival, wiping out certain junior bondholders and putting tens of thousands of jobs around the world in peril.

Credit Suisse Chairman Axel Lehmann and Chief Executive Ulrich Körner were reportedly told by the trinity;

“You will merge with UBS and announce Sunday evening before Asia opens. This is not optional,” a person briefed on the conversation recalls.

Keller-Sutter, the FT says, was a key figure pushing for the deal as she faced international pressure to resolve the Credit Suisse situation. This included pressure from US Treasury Secretary Janet Yellen.

“By Thursday, we were all together in Zurich, and it was clear that the government was going to push one way or the other for a solution by Monday morning, at all costs, to protect Swiss national interest, and banking interest more generally, on a global basis,” says the person close to Credit Suisse.

Keller-Sutter, the finance minister, was a key figure throughout the negotiations, including co-ordinating with foreign officials and regulators in the US and Europe.

She was under extreme pressure from global regulators, who had been demanding faster and more decisive action to stop panic spreading in markets. In particular, the US and the French were “kicking the shit out of the Swiss”, says one of the people advising UBS. Janet Yellen, the US Treasury secretary, had several conversations with Keller-Sutter over the weekend.

2) Are the big Aussie banks now government contractors?

In Australia Alan Kohler, the founder of Eureka Report and an ABC News finance presenter, has written an article for The New Daily in which he argues;

Banking is the confidence trick that lies at the heart of capitalism, but preserving the trick has meant that banks have become arms of the state.

Kohler argues the borrow short and lend long maturity transformation of banks underpins the capitalist society. The economy has been financialised over recent decades, he adds, with global debt soaring. Now, Kohler says, Australia's big four banks - parents of NZ's big four - are no longer part of free-market capitalism.

The big four are valued at $394 billion (even more than eight nuclear submarines) so they won’t be nationalised, but they are too big to fail.

Anything that can’t be allowed to fail is not a part of the free-market capitalism founded by Adam Smith, or the “creative destruction” preached by Joseph Schumpeter or even the neoliberalism of Milton Friedman.

And that’s the great paradox of the free market: The banks that lie at its heart are not free, or in the market. They are government contractors.

Three years ago, in March 2020, as Covid-19 took its grip, I argued banks were effectively becoming an extension of the state. This was as a range of measures to support both the economy and banks were rolled out amid fears of armageddon. In a crisis banks are such significant players in our economy that government actions to prop up the economy will also benefit banks. And governments have shown they will do what's needed to prop up the banks if necessary too.

3) An unwanted trifecta.

Latitude Financial Services, which offers personal loans, car loans, credit cards and insurance in NZ under the Gem Finance brand, and whose buy now pay later service Genoapay recently stopped accepting new customers, is battling a major cyber attack. 

In its most recent statement to the Australian Stock Exchange (at the time of writing), Latitude says;

We are continuing our forensic review to determine the full extent of the attack on Latitude and the amount of personal information stolen by the attacker.

Our people are working urgently to identify the total number of customers and applicants affected and the type of personal information that has been stolen. 

Our focus remains firmly on containing this attack, progressing our forensic review of the actions taken by the attacker and restoring operational capability gradually over the coming days.

Meanwhile, Internal Affairs has provided this information for New Zealanders whose passport details have been stolen in the attack.

Over in Australia the ABC has written about people who were victims of personal data breaches at Optus and Medibank last year, and as Latitude customers, may have struck the trifecta. 

Courtney Randall can only joke about how much of her personal information has been potentially leaked in a breach.

"It's a slap in the face," she said.

"It's gotten to the point where the only sensitive piece of information that hasn't been leaked about me on the internet is my favourite colour."

The Queensland resident took out a small loan with Latitude Financial to pay off her mobile phone bill.

The non-bank lender is the latest major Australian company to have the data of its customers hacked by unknown criminal entities.


Ms Randall does not know if she is one of the unlucky cohort. Unfortunately, this waiting game is not new to her.

She is a customer of telco Optus and a former one of the private health insurer Medibank, which were also both hacked last year. Ms Randall is furious at this situation and the response from companies and the government.

"I've got no compensation," she said.

"Time and time again, I've received vague emails and no follow-ups."

The ABC goes on to note the Federal Government's plan to establish a national cyber office, led by a new coordinator for cyber security, under the Home Affairs Department. Australia also now has a Minister for Cyber Security, Clare O'Neil.

I discussed the Aussie moves with Adam Boileau, Executive Director of security, testing and assurance at cyber security provider CyberCX, in an episode of the Of Interest podcast late last year, and whether NZ ought to also have a Minister for Cyber Security.

4) Central banks choose 'class war over financial stability.'

 Ann Pettifor, the British economist and author, has come out swinging at central banks. In a new article Pettifor says she has found it hard to face up to what central bankers are doing in their battle against high inflation, and not just - as she puts it - by raising interest rates, suppressing demand and lowering wages.

Pettifor argues that through lack of analysis, regulation, oversight and foresight, central banks have also shown they're prepared to use high interest rates to risk "and even precipitate" bank failures and global financial instability.

They have done so, and continue to do so by deliberately tightening monetary policy into heavily indebted economies, with falling real incomes. Economies that have still not fully recovered from both the GFC and the pandemic.

I found it hard to get my head around that reality. Namely that together with their Boards and staff, the civil servants that head up central banks seem willing to sacrifice private banks and global financial stability in their rush to raise rates, crush demand, discipline workers and shrink the nation’s income.

In other words, their effective preference is for class war over financial stability.

The proof for what might seem an outrageous accusation is in the ECB’s recent decision-making.

On Wednesday last week, and at the height of US financial instability, the European Central Bank (ECB) Board set out to prove my point.

Ignoring the bank failures caused by the Fed’s too-rapid rate rises, and well aware that a crisis in one part of the system ricochets across the world - the ECB defiantly lifted all three of the their key rates by a whopping 50 bps.

Were they blind to the risks higher rates posed to European banks like Credit Suisse? Just as they are careless of the impact on employment and workers wages?

Or did ideology which elevates inflation above all other indicators trump common sense?

Answers on a postcard please.

5) Is it time for personal bank accounts at central banks?

In a recent article about banking competition I noted the potential for people to have an account directly with the central bank, thus disintermediating private retail banks. I'm not suggesting, however, that this is on the agenda at either the Reserve Bank or our two very conventional major political parties.

In a new episode of Bloomberg's Odd Lots podcast hosts Joe Weisenthal and Tracy Alloway probe this issue. Following the failure and bailout of Silicon Valley Bank, they ask whether it's time for public checking accounts at the Federal Reserve. Their guest is Saule Omarova, a professor at Cornell Law School.

Omarova suggests all finance is inherently political. It's an interesting discussion.

Here's the promotional blurb.

When Silicon Valley Bank failed, the government stepped in and guaranteed that all accounts - even those well above the FDIC threshold for deposit insurance - would be made whole. So now people are wondering whether all accounts at every bank are implicitly guaranteed, regardless of their size. But if they are, then what is the point of private, for-profit retail banking? On this episode of the podcast, we speak with Saule Omarova, a professor at Cornell Law School. She had been nominated by President Biden to head the Office of the Comptroller of the Currency, but was forced to withdraw due to fierce opposition from the banking lobby. That opposition was based, in part, on her endorsement of public checking accounts at the Federal Reserve. But what was a seemingly "out there" view a year ago, is now firmly within the Overton Window of political possibilities. On this episode, we discuss the SVB disaster, what it means for banking, and the case for a public option.

We welcome your comments below. If you are not already registered, please register to comment.

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.


The big four (Aussie banks) are valued at $394 billion so .... they are too big to fail.

Which is precisely why their Kiwis offshoots won't be allowed to fail either. Who would deal with, say, ANZ New York if they allowed their New Zealand subsidiary to fail? No one. And it's why the Aussie banks "make oversized profits" here. In effect, we are paying for an implied bank guarantee already.

(NB: Rabobank's parent is bigger than any of the Aussie banks, and a similar sentiment applies)


You are raising a very good point indeed. 


Interestingly to me as an investor, despite much howling over bank profitability, bank share price remains weak:…


1. "When a management with a reputation for brilliance tackles a business with a reputation for bad economics, it is the reputation of the business that remains intact." - Warren Buffett.

I wonder if UBS will survive this over the longer term? Shareholders don't seem convinced that the shotgun wedding will lead to a mutually beneficial marriage.

4. Argument doesn't make sense to me. Over the last decade reserve banks increased the money supply as the velocity of money fell to support GDP and inflation (price level):

Money supply × Velocity of money = Price level × real GDP.

Now velocity is increasing again we need to trim back money supply to prevent inflation.

M1 money supply:

Velocity of M1 money:


We have a very long way to go if the velocity of money is normalised, as you can see.


Sounds good.

But in the Debt soaked society we have, any reduction in Money Supply is going to push up interest rates, as it is, and so spur Inflation. Those that desperately need loans to stay afloat will pay what-ever-it-costs to replace the funding they might already have in place.

This happened in the 80s when some big businesses refused to repay their loans at maturity, and simply said" Just tell me what the new interest rate is", and it didn't matter if the rate was triple or more what they were paying, because they knew they wouldn't get the money back if they repaid it. Bond Corporation comes easily to mind.

As a Lender you have to weigh up the punitive 'encouragement' of the new interest rate versus the chance that the business will be tipped over as a result, and you'll be fighting other creditors for your part of the wreckage.

So whichever way we turn now, Inflation is going to push higher, and with it the ultimate form of control - Interest Rates.


Unfortunately the rates of interest have been kept below the rate of inflation for the last 10 years - We have blown an everywhere bubble of debt that has to unwind.  This unwinding will come in of two ways - Financial collapse which wipes out all those with debt, or a hyperinflation event which will effectively wipe out the debt, and the fiat currency ponzi as well.

I can't see any other way out of this mess in a controlled manner.  I'm feeling rather glad I have no debt right about now...


People obsess about gross interest rates but it's real interest rates that matter:

We are still running expansionary monetary policy in reality and have done for many years.


Interesting. Though there remains interest rate driven cashflow requirements and negative leverage effect as prices decline. That is enough to get obsessed over regardless.


Central banks by their actions push banks into failures, leading to consolidation in the banking industry, reinforcing the status of the TBTF Banks.
Their single minded focus on inflation control (Is 2% inflation a Holy Grail worth chasing ?) is pushing Banking, Finance and Economies into tailspins all over the world.
There are not enough financially/economically savvy politicians to understand and direct these Central Bankers, Regulators, etc. The unintended consequence of only Lawyers becoming Politicians in the US ?



Quote :
The Swiss government claimed the gang washed millions of dollars through the bank and fined Credit Suisse $2.1 million and ordered it to pay the Swiss government $20 million.

A pittance of a fine and the Government makes money from the Cocaine money laundering. Great outcome ?



The private banking system is intrinsically tied to the central bank through the payment system as banks will only accept the governments own currency from each other and which they hold in their exchange settlement accounts at the central bank. Banks will not accept each others deposits which are the liability of each individual bank created out of their act of lending. For example if the purchaser of a house uses a different bank from the seller then an equivalent amount of government digital currency will be transferred between the banks. Economist Warren Mosler describes banking as a PPP.


Enjoying some of these boundary pushing shares Gareth!

A basic state banking account and long-term fixed state mortgage seem such an obvious move to me. The banks are now so well regulated that they are effectively franchises of the central bank - and, the market structure is so broken that the big players basically just pick their % return on equity and deliver it by adjusting net interest margins and fees etc.

Also worth noting that the state's mortgage book and Govt bonds would interplay nicely on opposite sides of the Crown's balance sheet.


It may be more accurate to note that 'the state' is a subsidiary  of the global banking system


They feed on each other and take care of each other. After the Oil Barons, it is the Banking Barons that have influenced the Governments of the West for the last several decades.


Central Bank Accounts

It’s bad enough now imagine if citizens had an account with the Central Bank, the politicians would be constantly directing or encouraging the bank to make deposits into their accounts to stimulate economy. Plus, directives along the lines of if you don’t spend the additional deposit within a month, you’ll lose it, nuts.

Most of the worlds current financial problems can be traced directly or indirectly to the Central banks trying to play God with economies by manipulating the price of capital, and funding Govt folly.     


Most of the worlds current financial problems can be traced directly or indirectly to:

(a) central banks playing god (by, errrm, regulating the banking sector and assuming the role of lender of last resort)

(b) bankers inventing ever riskier ways to gamble with money that isn't theirs

(c) economists taking over central banks in the 70s and introducing bonkers monetary policy

I am definitely with (b) and (c) before (a)


Central banks how no say over the governments spending, that is the job of the treasury directed by the finance minister through his annual budget. The treasury directs the central bank to make payments and the central bank then creates the funds and it cannot say yay or nay. 


As the UK Government recently discovered....not.


That was a failure of the BOEs own monetary policy in destabilising the British pension funds by reducing the value of their bond holdings just as with the Silicon Valley Bank and really had nothing to do with government finances.  


Quite the contrast,

- In NZ, plenty of people are railing against banks making excess profits

- Rest of the world - Banks going bankrupt


Just sayin


It's true. Monetary policy in NZ works by (a) taking billions of dollars from mortgagors and giving it to bank shareholders, and (b) smashing the housing market and residential development. Most NZ Govt bonds are owned by The Crown (or by overseas central banks / investors) so NZ banks are not as exposed to interest rate risk. So, in NZ the things that 'break first' are construction, consumer demand, unemployment levels (and all that good stuff).

In the US, monetary policy can't work through the mortgage channel because everyone is on 30-year fixed term mortgages, so it is the financial sector that breaks first as financial asset values drop. See also the looming commercial real estate disaster with a side helping of residential house building.


Charles Gasparino on the rift between the White House and Yellen:

The question is when will Sleepy Joe & Co. finally act? They need to put Yellen out of her misery and end ours by handing her job to someone who knows how to deal with the very real possibility of banks failing on a scale not seen since the 2008 financial crisis and a possible deep recession.

As we have reported, the political types in the White House — the people that craft messaging and give input on cabinet choices — have been increasingly wary of Yellen’s ability to do the job despite her expansive resume and years running the Fed, people with direct knowledge tell the Post.

They grew sour over her bungled response to inflation (recall how she said it was transitory as it was exploding). It’s why they floated possible replacements last year, including Commerce Secretary Gina Raimondo, and Brian Moynihan, the CEO of Bank of America. Both are seen as policy heavyweights. Unlike Yellen, they have real-world business experience (Yellen’s been in academia and government throughout her career).…


Re An unwanted trifecta

It does not seem to be well known that Credit Reports can be temporarily or permanently suppressed.  In the case of identity theft the best thing to do is request a CR suppression,  its free, and this will prevent anyone from taking a loan out in your name.  Typically a loan requires a credit check and if you have it suppressed the lowlife that is using your identity will be stopped in their tracks.  Me personally I have permanent suppression on Centrix and Illion and an alert on Equifax.


"Or did ideology which elevates inflation above all other indicators trump common sense?" Why is every economic commentator so willfully blind? Although, why am I surprised, little things like a livable and finite planet are totally ignored by most.

 It's about that inconvenient little disturbance in Eastern Europe. Interest rates must go up to suppress demand, especially demand for energy! Low energy prices damage Russian ability to fund their war. High demand, high energy prices mean Russia will be waging war against the planets financial system virtually permanently. So which is it to be? High interests rates and pain + business failures, or a world where Vlad calls the shots, with its stock of natural resources, which is guaranteed to be permanently extremely ugly! There is no win, win here. 


Not any comments here about the ‘class war’ narrative that is doing the rounds at the moment. With words like ‘punishing workers’ as part of the discourse. Looking from the outside it looks like the CB’s are slavishly sticking to the playbook in terms of rising interest rates to suppress wages amongst other things. Where are the grassroots memes and protests that would normally follow such as assertion? Perhaps these will emerge when unemployment skyrockets and wages stagnate or are suppressed around the world.