As a pension fund, we primarily invest your pension in stocks, bonds, and real estate. Of course, we keep a close eye on movements in the investment market and try to anticipate trends and events, such as the recent developments in the banking sector.
The confidence problem at some American banks - which actually began in late January/early February - stemmed from less stringent bank supervision at these banks due to their balance sheet being smaller than $250 billion. This made it possible for these banks to experience a significant mismatch between their investments and their obligations. In order to meet the outflow of deposits (problems in the tech sector meant that tech companies were struggling to obtain financing), the banks had to sell their bonds at significant losses. This significantly worsened their solvency and ultimately resulted in a "bank run" and even bankruptcy for some of these banks. As a result, the stock prices of several regional American banks plummeted.
In Europe, Credit Suisse ran into trouble, despite the fact that the bank was well capitalised and met the increased liquidity requirements from regulators. Credit Suisse was eventually taken over by UBS on Sunday, March 19th. According to Swiss authorities, the possible collapse of Credit Suisse posed too great a risk to the global financial system.
Despite the fact that European banks are well capitalised and have a good liquidity position, all banks are heavily leveraged (the ratio of debt-to-equity is very high). The widespread loss of confidence from customers and counterparties is deadly for any bank, no matter how good the bank may be.
The pension fund had limited exposure to regional American banks and Credit Suisse; timely sales kept losses limited.
