Opinion by Dan Davies: Credit Suisse and Silicon Valley Bank’s problem is an addiction to clients
, Credit Suisse repeatedly put its name and franchise behind clients whom it ought to have turned away. Lawsuits and massive regulatory fines piled up. Profits evaporated. In the end, even the billionaires started to leave; you can be publicly shamed only so many times before it tarnishes the brand.from the Swiss National Bank in the middle of the night. That doesn’t communicate a strong business.
In the history of high-profile bank failures, it’s quite common to find that “the clients ran the bank.” Banks with this issue enjoy long periods of looking great, because they are close to extremely successful people and develop really good ways of serving them. Then eventually, along comes the precise set of circumstances under which the great client becomes a risk, and the risk can’t be managed because the bank’s management hasn’t got the judgment or character to separate the client’s interests from its own. The collapsed Anglo Irish Bank was addicted to property developers. Iceland’s failed Kaupthing was too attached to the nation’s wannabe financiers. They all rose and fell with the client base that had made them rich.
This is why banking is a regulated industry. A profitable bank will rarely say no to a customer with whom it has a strong relationship. That’s why you need a stern-faced civil servant, on a fixed salary rather than a bonus, to remind everyone of the risks. The customer is not always right.
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