Swiss National Bank To Support Credit Suisse
The financially troubled Credit Suisse says it will borrow up to 50 billion francs ($54 billion; £44.5 billion) from the Swiss National Bank. The institution declared that as part of its effort to become a simpler bank, it was acting decisively to increase its liquidity.
After the announcement that it had discovered “weakness” in its financial reporting, shares of Credit Suisse dropped 24% on Wednesday. Fears of an expanding financial crisis resulted from this, which caused a major sell-off in European markets.
Credit Suisse said the bank’s borrowing actions showed “decisive steps to strengthen [the bank].”
The failure of Silicon Valley Bank, the 16th-largest bank in the nation, and the failure of Signature Bank two days later revealed issues in the banking system in the US last week.
As the share price of Credit Suisse fell on Wednesday, a significant shareholder, the Saudi National Bank, announced it would stop investing in the Swiss company.
Concerns extended throughout the financial markets, causing a severe decline in all major indices.
“The problems in Credit Suisse once more raise the question whether this is the beginning of a global crisis or just another ‘idiosyncratic’ case,” wrote Andrew Kenningham of Capital Economics.
The Swiss National Bank, which serves as Switzerland’s central bank, and the Swiss Financial Market Supervisory Authority made statements assuring investors that they would support Credit Suisse if required in an effort to allay investor concerns.
In order to “guarantee their stability,” strict regulations are applied to Swiss financial institutions. According to the authorities, Credit Suisse satisfies the criteria for systemically significant banks.
According to the BBC, the Bank of England has communicated with Credit Suisse and the Swiss government to keep tabs on the issue.
“There are no indications of a direct risk of contagion for Swiss institutions due to the current turmoil in the US banking market,” they said in a joint statement.
The Bank Crisis
Credit Suisse, established in 1856, has recently dealt with several crises, including accusations of money laundering and other problems.
It experienced losses in 2021 and 2022, its worst years since the 2008 financial crisis, and has warned that it does not anticipate turning a profit until 2024.
Before this week, the company’s shares had already taken a beating, with their value dropping by almost two-thirds as a result of consumers withdrawing money.
Investor worries were rekindled by the bank’s Tuesday admission of “material weaknesses” in its financial reporting systems.
Tensions grew more intense after the head of Credit Suisse’s largest shareholder, the Saudi National Bank, declared that the bank would refrain from purchasing further shares for regulatory reasons.
Credit Suisse maintained at the time that its financial situation was unimportant. But, as other banks hurried to minimize their exposure to the company and prime ministers in Spain and France attempted to allay anxieties, shares in the lender ended Wednesday down 24%.
The greatest collapse of a US bank since 2008, Silicon Valley Bank (SVB), which specialized in lending to technology businesses, was shut down by US authorities on Friday. HSBC purchased the UK division of SVB for £1.
After the SVB failure, the New York-based Signature Bank similarly failed, with all deposits at both institutions being guaranteed by US regulators.
But, worries that other banks may have similar problems have remained, and this week’s trade in bank shares has been erratic. On Wednesday, the Stoxx Europe Banking Share Index fell 7%. In the US, shares of small and major banks suffered, contributing to the Dow’s down of over 0.9% and the S&P 500’s decline of 0.7%.
The largest one-day decline since the early days of the epidemic in 2020 occurred when the UK’s FTSE 100 plummeted by 3.8% or 293 points.
“This banking crisis came from America. And now people are watching how the whole thing could also cause problems in Europe,” said Robert Halver, head of capital markets at Germany’s Baader Bank.
“If a bank has had even the remotest problem in the past, if major investors say we don’t want to invest any more and don’t want to let new money flow into this bank, then of course a story is being told where many investors say we want to get out.”
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