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Should We Be Freaking About the Banks? Probably Not

Should We Be Freaking About the Banks_ Probably Not

The markets close for the week on Friday at 4:00pm ET, but while some take the weekend to relax — there are plenty of nerds spending it speculating about what will happen in the following week.

This weekend, the recurring theme among the ardent finance-types was two of the world’s largest financial institutions: Credit Suisse and Deutsche Bank. And they — the highly-online finance community — were clinging to a slightly unsettling idea: whether or not the banks are well.

Most of the negative press fell squarely on Credit Suisse, which has been in the news since CEO Ulrich Koerner attempted to settle markets, employees, and investors just days ago.

In the memo, Koerner said the bank was at a “critical moment.”

In recent years, the bank has been poorly stewarded — and an effort to push a new strategic plan and reorganize the business is top-of-mind.

However, it did little to settle investors — who sent Credit Suisse’s credit default swaps to the widest spreads since the financial crisis (CDSs pay out in the case that the bank defaults, or fails to pay its debt. They are complicated financial vehicles for experienced debt investors.)

Related: Banks Continue March In Q2 Earnings.

Today, when the market opened, the conversation in financial media centered squarely on Credit Suisse. They talked about the swaps, the bank’s abnormally low price-to-book ratio, and the stock’s remarkable fall. All suggested something was very wrong with Credit Suisse, but their alarmism was not as great as the highly-online memestock-adjacent finance crowd.

And it didn’t last, either. The coverage suggested odds of either Credit Suisse or Deutsche Bank’s failures were overstated by the social crowd — and the story quickly turned to the S&P 500, which traded up more than 2%.

The odds of a “worst case” are never zero

In fact, the swaps suggest there is roughly a 23% chance that Credit Suisse defaults on its bonds. However, social engagement farms, meme accounts, and finance influencers have no incentive to be forthcoming when they broadcast alarmist media to millions — scaremongering collects eyes, ears, and followers.

Scaremongering also has another oft-considered effect: it aims to part you with your money. That’s why it pays to take everything with a grain of salt, check your sources, stay educated on fact and fiction, and plan for the future.

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