During an interview with Bloomberg on Wednesday, Harvard professor, economist, director of the National Economic Council under President Barack Obama, and Treasury Secretary under President Bill Clinton Larry Summers argued that there was “probably a contagious element” to Credit Suisse’s problems and stated he was more concerned. On the problem of financial stability than it was two days ago.
“Credit Suisse has been in deep trouble for a long time,” Summers said. “It had a whole bunch of setbacks, and so there[‘s] It’s probably an infection element to this, but I think for the most part it’s just multiple problems coming together in a stream, and that’s definitely a complex and difficult situation. In many ways, much more complex than SVB, since Credit Suisse has complex global operations, there are many regulatory authorities involved in dealing with it. So, that’s obviously something that’s going to require attention. And I assume that the regulatory authorities are consulting with each other, in consulting with management on how to proceed in terms of the Credit Suisse situation, which certainly seems to have affected the valuations of large institutions globally and seems to have a significant impact on expectations for the future course of interest rate policy.
Host David Westen then asked, “But do we have a financial stability problem at this point? Are you more anxious about it today than you were 48 hours ago?”
Summers replied, “Yeah. I think as more companies get involved in this, so does the complexity and range of solutions that are required. See, this is the kind of thing the authorities have been planning since 2008. This is the orderly solution and all that. That’s what capital is all about.” That’s what the larger amounts of capital and liquidity requirements are all about. So in a way we’re having the first tests of the new system and the new system wasn’t doing very well in terms of SVB in the sense that it was necessary to allocate a whole bunch of new arrangements in higher. of the new system, and we’ll have to see what works for Credit Suisse.”
He follows Ian Hanchett on Twitter @employee
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