Credit Suisse and US banks went bankrupt for this main reason

The bankruptcy of the American banks Silicon Valley Bank, Signature Bank and First Republic Bank and the Swiss Credit Suisse It was produced by the excessive search for short-term profitability, driven by executive remuneration policies.

This is one of the conclusions of the report that the Basel Committee on Banking Supervision published this Thursday on the banking turbulence of last March.

This supervisory body considers that the cause of the bankruptcy of these banks was “Fundamental shortfalls in basic risk management of traditional banking risks (such as interest rate risk and liquidity risk and various forms of concentration risk)”.

Silicon Valley Bank, Signature Bank and First Republic Bank and the Swiss Credit Suisse Nor did they perceive how the appearance of several specific risks were interrelated and could form another risk.

Besides, “Their business models were inadequate and unsustainable” because they focused excessively on short-term growth and profitability with remuneration policies at the expense of appropriate risk management.

The Basel Committee on Banking Supervision also considers that risk management and supervision of banks’ boards of directors was not effective and that the response to supervisory recommendations was not adequate.

For this reason, the banking turbulence of March highlights the importance of supervision of financial entities and that supervisors can require them to take action when they see problems.