The failure of SVB and other regional banks in the US, which led to the turbulence now affecting Credit Suisse, can largely be attributed to the sharp increase in rates and the inversion of the yield curve. When the yield curve inverts, “carry trades” (buying long-term securities and funding this with short-term securities) fail to work. SVB was exposed to this type of carry trade, and this was one of the catalysts that led to a run on its deposits and, ultimately, its failure.

The events at SVB triggered negative investor sentiment within the banking sector at a time of central bank tightening. Within Europe, Credit Suisse already stood out as an institution which had been experiencing deposit outflows for some time and hence was on investors’ radars.

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