Efforts to prevent Credit Suisse Bank crisis

SGGP 03/17/2023 06:16

Following the bankruptcy of Silicon Valley Bank (SVB) in the US, it was the turn of Credit Suisse (CS) in Switzerland to receive a loan of up to 54 billion USD from the Swiss National Bank (SNB) to strengthen liquidity and investor confidence after the stock price fell.

CS said the 50 billion Swiss franc ($54 billion) loan from the SNB had helped reverse some of the heavy losses in the stock market and restore confidence in broader financial markets. CS shares had lost more than a quarter of their value amid ongoing market jitters following the collapse of SVB, the biggest U.S. bank failure since 2008. CS shares rose 21 percent in pre-market trading on Tuesday, helped by the SNB loan, and helped European stock indexes rebound. CS is the first major global bank to receive an emergency bailout since the 2008 financial crisis.

Meanwhile, stocks in Asia were in the red as investors rushed into gold, bonds and the US dollar. CS CEO Ulrich Koerner earlier sought to reassure investors of CS’s strong liquidity. CS bankers in Asia have also been reaching out to reassure clients. Concerns about CS and the massive investor withdrawals have raised concerns about a broader threat to the global financial system. Policymakers in Australia and South Korea sought to reassure markets on March 16 that banks in their jurisdictions were well capitalized.

Analysts believe that with these new developments, it is likely that the US Federal Reserve (FED) will have to pause or even reverse its plan to raise interest rates. However, the European Central Bank (ECB) still raised interest rates by 0.5% (to 3%) at its meeting on March 16 despite concerns about the “health” of the European banking system.

Investors are now focused on what happens next at CS. If SVB creates a ripple effect in the market, the CS case will be much more serious, similar to the moment when Lehman Brothers collapsed, kicking off the global financial crisis in 2008.

Source