Citigroup CEO Says, ‘This Is Not a Credit Crisis,’ After Three US Bank Failures

Citigroup CEO Jane Fraser testifies on Capitol Hill in Washington, on Sept. 22, 2022. Evelyn Hockstein/Reuters

The head of Citigroup denied that there was a credit crisis despite three U.S. bank failures and the collapse of Credit Suisse this month.

Citigroup CEO Jane Fraser stated that she had sound confidence in American banking system after the series of closures caused investors to panic, sparking chaos in financial markets worldwide.

“The banking system is pretty sound” and that large and regional banks are still well capitalized, Fraser told the Economic Club of Washington, D.C., on March 22.

“This is not a credit crisis. This is a situation where it’s a few banks that have some problems, and it’s better to make sure that we nip that in the bud,” said Fraser, one the first major bank CEOs to make a public comment since the crisis began.

Major Banks Keep Smaller Rival Afloat for Now

Over the past two weeks, Silvergate Bank, Silicon Valley Bank (SVB), and Signature Bank (SBNY) collapsed, with the latter two being taken into receivership by the federal government.

SVB failed after making risky bets in the bond market, while SBNY and Silvergate Bank got too heavily involved in cryptocurrencies.

Soon after, Credit Suisse was taken over by its Swiss rival UBS, while America’s top lenders agreed to deposit $30 billion into First Republic Bank after its near collapse last week.

“I don’t think anyone was falling off their chair that Credit Suisse ultimately ended up where it did, it was really a question of time,” said Fraser, who said she wasn’t surprised.

“It’s been a troubled institution for a long time,” she explained, noting long-term problems with management and various crises.

Citi, the fourth-largest U.S. bank, was one of the 11 major banks which offered a lifeline to First Republic in an effort to help it buy more time for restructuring.

Fraiser said that although Citi has no intention in buying First Republic, the bank contributed about $5 billion as a sign of confidence in the troubled lender and expects to be paid back.

“We usually try and kill each other in different deals that we’re trying to do,” she said, “but in this instance, this is one where we’re in a strong position, we want to stop what could have been a problem.”

The Citigroup CEO called the move an unprecedented show of unity among banking giants that normally show little compassion to weakened competitors.

However, the banks’ rescue efforts failed to prevent First Republic’s stock price from sliding 15 percent on March 22.

Citigroup CEO Praises Swift Federal Action on Bank Runs

Fraser praised the quick action by federal regulators to put an end to the bank runs that toppled SVB and SBNY and kept the financial panic from spreading.

The Treasury Department, the Federal Reserve, and the Federal Deposit Insurance Corporation invoked rare “systemic risk exceptions” that allowed them to guarantee at-risk uninsured customer deposits over $250,000.

“It’s very important to protect depositors,” Fraser said.

“The banking system everywhere around the world depends on confidence, and that confidence has to be in the safety and security of deposits,” she said.

Reuters contributed to this report.