UBS, Switzerland's largest financial institution, has agreed to acquire Credit Suisse. The acquisition price is $32.9 billion.

It was once one of the world's nine largest investment banks, but it changed hands for about 4.1 trillion won. Stories of Credit Suisse being at stake are not new.

Signs of crisis were detected two years ago. The investment failure, called the hedge fund Achegos incident, caused a whopping 2 trillion won, and there was even a "bank run" phenomenon in which investors scrambled to withdraw money because it was pointed out that it was less skilled than other investment banks. Last year's net loss soared to 7 trillion won due to the combination of bad news, and the stock price fell by a quarter in one year, effectively losing market confidence.

Recently, Credit Suisse's audit report for last year revealed "significant weaknesses," and even Saudi National Bank, its largest investor, pulled out. As this happened, war clouds hung over Europe. This is because there is growing concern that a second Lehman crisis may be starting in Europe.

Why is it important?

There is also a saying in the financial markets called "cannabis immortality." In the case of a large country or financial company that occupies a large financial market, it means that if it is left to fail, the market itself can be ruined, so it has no choice but to save it.

That's exactly what Credit Suisse is all about. Credit Suisse had total assets of about 750 trillion won, compared to 2008 trillion won when Lehman went bankrupt in 700 that led to the global financial crisis.

Of course, the Lehman crisis had a lot of repercussions because it involved the world's largest insurance companies, credit rating agencies and other banks, but the closure of Credit Suisse would likely send financial markets into a tailspin. UBS was also reluctant, but for this reason it opened its wallet, and the U.S. government actively cooperated in the process.

The Swiss finance minister also conveyed the urgency of the time, saying, "The failure of a globally important bank would have irreversible consequences for global financial markets."

To explain a bit more

When the Silicon Valley banks closed, U.S. Treasury Secretary Janet Yellen said "the U.S. banking system is strong," and European Central Bank President Lagarde struggled to stabilize markets, saying, "We won't see the same thing as we did in 2008."

However, as the Swiss government struggled to sell Credit Suisse, the rumor that "the market is in a very dangerous state" proved to be true to some extent.

One more step

The problem is that something similar could happen again in the future. If there's one reason why U.S. and European banks have closed, it's liquidity.

After the COVID-19 pandemic, as money was released into the market and prices began to soar, the U.S. central bank aggressively raised its benchmark interest rate. In just over a year, it has risen by a whopping 1.4 percentage points, which is an unprecedented pace. This led to the phenomenon of "money moves," in which money is concentrated only in large banks that look dry and strong in the market.