AMNA NAWAZ: Good evening, and welcome to the "NewsHour."
Trouble at a major European bank today has injected fresh turmoil into global financial markets.
Shares in Credit Suisse plunged here and abroad after its largest shareholder ruled out a rescue.
GEOFF BENNETT: That sent key European markets down sharply.
On Wall Street, stocks sold off early, then rallied late.
The Dow Jones industrial average was down 725 points at one point, but ended with a loss of 280 points, less than 1 percent.
The Nasdaq ended with a tiny gain of six points.
The S&P 500 dropped 27.
William Brangham picks it up from here.
WILLIAM BRANGHAM: So, does the turmoil in the markets mean that the banking sector hasn't escaped this recent turbulence?
For a better understanding, we turn to Peter Conti-Brown.
He is co-director of the Wharton Initiative on Financial Policy and Regulation at the University of Pennsylvania.
Peter, thank you so much for being here.
This was a yo-yo of a day on the markets, seemingly people spooked by what's happening with Credit Suisse.
But help me understand something.
The Fed earlier this week made this massive intervention to calm the waters, but the waters do not seem to have calmed.
What is going on here?
PETER CONTI-BROWN, University of Pennsylvania: We have different parts of the pond, so to speak.
The -- there is no doubt that the waters for investors in banks is very choppy.
And this matters for banks because, as their values plummet, all kinds of other financial consequences can arise as well.
What the Fed did was focus in more in a different part, which is, what about those banks that are at the very brink of destruction or even past it?
And that's where the Fed was seeking to intervene.
And that's what makes this a banking crisis, is that we have had banks, very large ones, that have failed.
We have banks, very large ones, that have come near to failure.
And the question now for us to ponder is, does the choppy markets for shareholders mean that we have a lot more of those banks that are teetering on that edge, where the Fed has sought to intervene?
WILLIAM BRANGHAM: And what is your sense about that?
Is this potentially you know, what we're seeing in Europe now, part of a larger contagion or not?
PETER CONTI-BROWN: I don't think so.
I think this is an example of someone who got a very serious cold while also breaking their leg at the same time.
The problems with Credit Suisse have been going on for a very long time.
What we're seeing right now in -- from the Silicon Valley Bank and some of the other banks similarly situated, that looks pretty different.
What they have in common is that it is very hard to be in the business of banking when central banks are raising interest rates.
That's a challenge.
A lot of banks, the overwhelming majority of them, are navigating this beautifully.
Some, like Credit Suisse, like Silicon Valley Bank, like others, have done quite poorly, by comparison.
That's what they have in common.
But the differences are important, because that means that this isn't the beginning of a financial crisis, a long run of dominoes that starts with Silicon Valley Bank, leads to Credit Suisse, and then, all of a sudden, it's 2008 all over again.
I don't think we're there.
WILLIAM BRANGHAM: So, given that, what's your take on the -- this massive federal intervention that happened earlier this week?
Was that warranted?
PETER CONTI-BROWN: You know, it's one of two things.
Neither is good.
Either it was not warranted, and this is a dramatic overreaction, in which case, a lot of quite-well-off, some very large companies, some small companies, were bailed out through the FDIC and the Fed's intervention, being made whole, even though they didn't have that legal entitlement.
never mind the bailouts that have followed with banks that should have gone bankrupt, but didn't because of the Fed support.
That's not good for our politics.
It's not good for our economy.
But that's only if the Fed overreacted.
If the Fed reacted as a crisis fighter should, that we really do have a banking system that's on the brink of collapse, that's not a good place for us to be either.
I'm more inclined to the view that the Fed overreacted, that the Fed overreacted, because having been trained in 2008 and 2020, they see any kind of bank failure as a kind of bank crisis.
But I don't think that's correct.
I think we want to, in a healthy economy, from time to time have bank failures that we can handle just in the usual course of things, as we would with other kinds of business failures.
WILLIAM BRANGHAM: Some people, including Senator Elizabeth Warren, have argued that recent rollbacks to the Dodd-Frank reforms -- these were the reforms that were put in place after the '08 crisis -- contributed to this crisis we're in right now.
Do they have a point?
PETER CONTI-BROWN: They do.
The key word is contributed.
If they had said that the 2018 rollbacks had caused the crisis, that would be overclaiming.
So it's important to tease out how that contribution occurred.
In 2018, Congress told the Fed in this law - - they gave them very few specifics.
They basically said, pull back.
And the Fed said, we will, and then pulled back, according to the law, and then pulled back further.
The dust is still settling.
Whether that caused the crisis in Silicon Valley Bank, there are good arguments on both sides.
But the best issue at stake is not what happened in the legislation or the regulation, but bank supervision.
Bank supervision is the place where the government and the banks are in constant dialogue with each other.
And, there, the signal sent to supervisors was to do the same, pull back even further.
Now, this is not one of those crises where the red flags were missed.
The bank supervisors were not asleep at the switch.
They would have seen all of this.
What they didn't do is put their hand on the switch to divert the crisis.
And we don't know why.
So I think it's appropriate to say 2018 and the signal from Congress through the Fed to the bank supervisors to the banks was that risk management will be the affair of the banks only.
And the banks, at least in Silicon Valley, have not done a great job of that.
WILLIAM BRANGHAM: Peter Conti-Brown at the University of Pennsylvania Wharton School, thank you so much.
PETER CONTI-BROWN: What a pleasure.
Thank you.
