The collapse during March and April of four major banks in the US, and the forced merger of Credit Suisse with UBS underline the continuing crisis facing imperialism today. This is the existence of stubborn barriers to further capital accumulation. Imperialism must raise its rate of exploitation of the working class worldwide in order to raise its profitability. The task of soundly defeating the working class, to solve capitalism’s ‘productivity puzzle’, demands a massive increase in the production of commodities containing ever more expropriated labour, and consequently more to sell. A terrible inter-imperialist struggle for markets must inevitably follow. JAMES MARTIN reports.
Since the 2008 financial crisis, the world’s largest money monopolies, dubbed the Global Systemically Important Banks (G-SIBs), have relied unconditionally upon their state politicians to save them: this is state-monopoly-finance-capital at work. Any G-SIB that failed would threaten much of the global financial system, but ultimately each imperialist state conspires to protect its own banks against those of its opponents. British banks HSBC and Barclays are two of 30 such G-SIBs. Until 10 March, Credit Suisse, Switzerland’s second largest bank after UBS, was another. However, its collapse and ‘rescue’ was a tale foretold. Aware of the dangers facing Credit Suisse, the Bank of England had been working on a contingency plan since October 2022 with Swiss and US regulators. All that was required to precipitate the collapse of Credit Suisse was a shock from another large bank failure. This happened in the US.
The Silvergate nightmare
This was the first ever crypto-related bank failure. Silvergate Bank was one of the few banks servicing crypto companies. Rumours about the crypto exchange FTX, a key Silvergate customer, had led to withdrawals from late October 2022, forcing the bank to sell $5.2bn of securities for cash at a loss of nearly $1bn. It obtained $4.3bn in advances from the Federal Home Loan Bank of San Francisco – ostensibly a government programme to support housing for the poor! When FTX filed for bankruptcy on 11 November, Silvergate’s digital asset customer deposits were $11.9bn, of which FTX represented $1bn. Customers fled in panic: these deposits fell to $3.8bn by 5 January 2023, and the bank announced 40% redundancies. On 1 March it delayed submitting its accounts, stimulating further withdrawals. On 8 March Silvergate voluntarily shut up shop.
Silicon Valley Bank (SVB)
As at 10 March, this was the second largest bank failure in US history, after the 2008 Washington Mutual collapse. SVB had branches in Canada and the UK, as well as China, Denmark, Germany, India, Israel and Sweden. It provided financing for almost half of US venture-backed technology and health care companies.
The rates of returns to US corporations have been falling tendentially for over 50 years, from an average of over 22% in 1947 to 13% in the 1980s, and is only 16% today. This is despite the brutal efforts of imperialism, with some 40% of profits in 2010 taken from overseas, compared to 5% in the 1950s. In this desperate search for loot, US overseas assets increased annually from $43bn a year in 2001 to $285bn in 2021. Around this pattern of falling average rates of return arise struggles between every type of investor, to seize better relative shares of the plunder on a global scale. Weaker companies sink. Mergers and acquisitions become the main type of domestic and foreign investment. High tech becomes an obsession in the search to raise rates of exploitation. Financiers encourage speculative, high-risk ventures to mop up overproduced and unused capital trapped as money hoards.
Meanwhile, business margins are so fine that banks are struggling to find borrowers. SVB put short-term deposits into longer-term fixed rate investments – government debt and mortgage-backed assets – to obtain higher returns, thereby reducing cash reserves available to meet withdrawals. When the Federal Reserve (Fed), the US central bank, pushed up interest rates, bond and mortgage-backed security prices fell, and SVB’s rush to sell these to meet a sudden surge in withdrawals resulted in large losses.
On 9 March, $42bn was withdrawn from SVB. It had to sell off bonds from its $124bn portfolio to meet its depositors’ panic. It was not enough: the next day the California Department of Financial Protection and Innovation closed it down. Its share price had fallen 80% over the year, and $150bn of its $175bn deposits were uninsured. The authorities in Canada seized SVB operations there to save Canadian depositors.
There were 3,500 UK clients of SVB UK. It was significant for start-ups: 40% of British tech firms had accounts with SVB. On Friday 10 March 2023, after its parent company’s crash in the US, and with an unrecoverable balance sheet of £8.8bn (deposits over £85k thereby exceeding government compensation limits), SVB UK desperately requested £1.8bn of emergency funding from the Bank of England. By Monday 13 March the British Treasury had negotiated a deal to sell SVB UK to HSBC, Europe’s biggest bank, for £1, throwing in some regulatory concessions as well.
Signature Bank
On 12 March Signature Bank, with $110.36bn assets, became the third largest bank failure in US history. The government’s Federal Deposit Insurance Corporation (FDIC) couldn’t find a buyer for all of Signature’s assets. Flagstar, a subsidiary of New York Community Bancorp, bought $12.9bn of Signature’s loans at a discount of $2.7bn. This will cost the US banks’ Deposit Insurance Fund around $2.5bn, underlining the absolute integration of state and financial capital. $60bn of Signature’s loans remain stuck with the FDIC.
After a fraught weekend, on 13 March Washington announced that for the first time Signature Bank and SVB’s uninsured deposits would be fully backed by the Federal Reserve. In total, US banks borrowed $300bn from the Fed in the week to 18 March, nearly half of which ($143bn) had gone to SVB and Signature Bank. Around 45% of deposits in the US banking system were uninsured at the end of 2022. Now ‘banking risk’ sits publicly on the back of taxpayers via the Federal Reserve, and ultimately on the working class.
US banking system: from stable to negative
Presently the US banks are sitting on a cumulative $620bn of unrealised losses. This means that if any of these assets were to be sold now, the cash coming in would be $620bn less than the cash invested in them. The collapse of Silvergate, Silicon Valley, and Signature, together with acute fears over Credit Suisse, led the credit rating agency Moody’s on 13 March to downgrade the entire US banking system outlook from stable to negative. This reflects rather than promotes the higher rates of interest creditors are demanding of banks, often the huge money management funds which now control half the western world’s money hoards. It demonstrates the serious, and paradoxical, threat that the money funds and banks present to the entire system as they push back against the tendency of the rate of profit to fall.
Credit Suisse
Following the collapses in the US, Credit Suisse shares hit an all-time low of $1.74 during the morning of 13 March. Despite being the world’s 17th largest lender, it had lost more than 90% of its stock market value since 2007. It was not alone: G-SIBs Barclays, Deutsche Bank and Citigroup have also lost most of their share value since 2007 – it is a long-term problem. In the last quarter of 2022, Credit Suisse depositors removed more than $100bn. On 9 February the bank lost 15.64% of its New York Stock Exchange value as it reported losses of $1.51bn for the preceding quarter, compounding losses over the previous year and longer.
On 19 March the Swiss government was required to use emergency powers to avoid a collapse of the country’s financial system, and forced Credit Suisse and UBS to agree a merger. UBS would pay Credit Suisse’s shareholders the knock-down price of 3bn Swiss Francs (SFr, equivalent to $3.23bn), a 60% discount on Credit Suisse’s already low stock market valuation, and a fraction of its SFr42bn balance sheet.
The Swiss government has agreed to provide UBS with SFr9bn to protect it from losses in reorganising, and provided SFr100bn of liquidity: $173bn in loans and guarantees to the new company. Swiss taxpayers are now burdened with billions of francs of junk (high-risk) investments. The new UBS’s combined nominal assets, $1.6 trillion, are now around twice Swiss GDP, and present a clear monopoly in the country where any further failure will require direct state control. The merged bank will have more than 120,000 staff worldwide: it will have to make billions of dollars of cuts, and up to 30% of staff in the merged bank could lose their jobs. UBS Asset Management runs £11bn worth of the pension assets of nearly one million British council workers.
Switzerland’s Federal Prosecutor has opened an investigation into the takeover, looking into likely breaches of criminal law by government officials, regulators and executives at the two banks.
First Republic Bank: the fourth US bank collapse
Despite efforts by the FDIC to save First Republic Bank in March, it reported a deposit slump of $102bn in the first quarter. Its share price then collapsed by more than 50% and the FDIC seized the bank. First Republic now replaced SVB as the second biggest bank failure since 2008. On 1 May, JPMorgan Chase, the biggest US bank, acquired all $93.5bn of First Republic’s deposits and most of its $229.1bn assets. The public subsidy to JPMorgan via the FDIC will be about $13bn, with a further $50bn of five-year fixed term financing. All depositors are saved. JPMorgan Chase will repay the $30bn that 10 other banks placed with First Republic in March in their failed effort to stabilise it.
A system in profound crisis
The whole system of contemporary capitalistic ‘growth’ depends on the provision of credit, based on hoped-for future adequate profit rates. For many businesses, including banks, their mass and so rates of profit aren’t sufficient to attract investors, and their deposit interest rates are too low to attract savers. The slow-motion nightmare continues. Overall US commercial bank lending fell by $105bn in the two weeks to 29 March, the largest two-week reduction in half a century. This same period also saw the largest decline in US commercial, real estate and industrial loans on record and the largest decline on record in bank mortgage holdings. Big savers in smaller banks are moving their cash to money market funds and to the largest banks. The world’s financial centres are nervous and the big imperialist state-run banks jointly announced measures to boost dollar availability – as happened in 2008 – to ease international money shortages for borrowers in the system and the danger of more failures.
This widespread crisis of profits has brought with it the increasingly pressing need for the ruling class – specifically those of the imperialist states – to protect the social basis for both their domestic and international plunder. Huge state expenditures on banks, armed forces of all types, prison systems, a subsidised mass of political allies in every walk of life, alongside the reluctant maintenance of state pauperism, has raised state spending to enormous sums. These drain the operational profits of productive capital, so at the same time as the large corporations eagerly conspire to reduce this burden at the expense of the working class, they fight each other for the redivision of surplus value, always stimulating greater monopolisation.
Accumulation of capital this year will slow to rates last seen in the early 1990s, and given that the accumulation of capital is the independent variable, the consequences are already enormous. This current banking crisis, part of the now endemic collapse of financial intermediaries, where capital cannot find sufficient projects to invest in at adequate rates of profit, signals the intensification of the massive attacks on the working classes everywhere – debasing our money wages is currently the key method. This demands conscious socialist political organisation, to kill off capitalism before it kills more of us.
Fight Racism! Fight Imperialism! No 294, June/July 2023
