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The Emergency button That Keeps Getting Reinstalled: A History of Last-Resort Banking Interventions

Geneva ⁤-⁢ From‍ Silicon‌ Valley‍ Bank to Credit Suisse,and ⁢even a ‍1991‌ airlift of Indian gold,global financial authorities have⁢ repeatedly demonstrated a⁢ willingness to ‍deploy unusual measures to prevent systemic collapse. These ‍interventions, ‍frequently enough involving the rewriting⁣ of financial rules and the prioritization of stability over ⁢established investor hierarchies, raise critical questions about ⁢moral hazard⁤ and the enduring reliance on “emergency buttons” in a world seemingly determined to test ‍thier limits.

These aren’t theoretical exercises. The past three years alone have witnessed a surge in these dramatic rescues, ​signaling a pattern of escalating intervention. ⁢While intended to ⁤prevent wider economic‍ contagion, each ‌instance reopens debates about fairness, risk-taking,⁤ and‍ the long-term consequences of shielding institutions deemed “too big to fail.” The frequency with which these buttons are pressed suggests a​ basic tension: the inherent instability of modern⁢ finance versus the political and economic costs of allowing major institutions to ​fall.

Here’s a look at ten instances where authorities hit the panic button:

1. Long-Term Capital Management (1998): A near-collapse of‌ the⁣ highly leveraged hedge fund LTCM prompted a coordinated bailout orchestrated by the Federal ⁣Reserve, fearing widespread disruption ⁤to credit ‌markets.

2. Bear Stearns (2008): The Fed⁣ facilitated the sale ⁣of Bear Stearns to JPMorgan Chase,​ providing financial backing to avert a broader panic during ​the initial stages of the⁤ 2008​ financial crisis.

3. AIG⁣ (2008): The government provided a massive ⁤$180 billion bailout to American International Group,the world’s largest‌ insurance company,to prevent ⁣its failure from triggering a cascading effect ​throughout the financial system.

4. Citigroup (2008-2009): Citigroup received multiple ‌injections of government capital and guarantees on its assets, totaling ‌over $45 billion, to stabilize the struggling bank.

5. Ireland (2008-2010): The Irish‍ government guaranteed ⁤all deposits in its banks, ultimately leading to a‍ sovereign debt crisis and a​ €67.5 ⁣billion bailout from the EU and IMF.

6. Greece (2010-2018): Greece required three ​separate bailouts from the EU,IMF,and European Central Bank,totaling over €289 billion,to avoid defaulting on ⁢its sovereign​ debt.

7. Cyprus ‌(2013): As part of a €10‌ billion bailout, Cyprus imposed a ⁣controversial “haircut” on depositors, ​wiping out a portion ⁢of savings in its two largest ​banks.

8. Silicon valley Bank (2023): Citing a systemic⁤ risk exception, all depositors were made whole following the bank’s collapse; shareholders and certain creditors were not. Concurrently, the Fed launched the Bank Term Funding Program to⁢ funnel liquidity against Treasuries at par.

9. Credit Suisse (2023): UBS acquired credit Suisse‍ with massive liquidity ‍support from ⁢Switzerland.AT1 bondholders were wiped ⁢out⁤ (CHF 16B) while shareholders received UBS stock,a ⁤move that sparked⁢ global scrutiny ‍of AT1 bonds.

10. India (1991): Facing a balance-of-payments crisis, the​ Reserve Bank of India airlifted approximately 47 tons of gold‌ to the Bank of England to ‍secure emergency foreign‍ exchange.