Amid growing fears of a global financial crisis, Swiss authorities have given banking giant Credit Suisse a $54 billion lifeline to shore up liquidity and boost investor confidence after the company’s stocks plunged 30% on Wednesday, March 15th, when its largest shareholder—the Saudi National Bank—said it would not provide additional support to the institution.
The turmoil surrounding the Zurich-based investment bank, which brought the company’s shares to an all-time low, comes on the heels of three medium-sized U.S. banks—including Silicon Valley Bank (SVB), Silvergate, and Signature Bank—having collapsed in a week. News that the financial contagion in the U.S. may be spreading to Europe has only intensified pre-existing anxieties about possible runs on global bank deposits.
Almost immediately, in the wake of the precipitous drop in the bank’s share price, Switzerland’s financial inspectorate FINMA and the country’s central bank said that Credit Suisse met “the capital and liquidity requirements imposed on systemically important banks” and therefore could access central bank liquidity if need be.
When markets reopened on Thursday, March 16th, Credit Suisse’s shares jumped around 18% after it announced that it would make use of a $54 billion loan from Switzerland’s central bank, indicating that markets had calmed and investor confidence had been propped up to some extent.
“This additional liquidity will support Credit Suisse’s core businesses and clients as Credit Suisse takes the necessary steps to create a simpler and more focused bank built around client needs,” the bank said.
Credit Suisse is the first global, systemically crucial financial institution, since the financial crisis of 2008, to receive a central bank lifeline.
The bank’s announcement helped to contain sell-offs in Asian markets and promoted limited rallies in European equities. Global investors on Thursday flocked to safe assets like gold, bonds, and the U.S. dollar.
It is worth noting that Credit Suisse has been plagued by financial troubles long before the bank failures in the U.S. Last year, Credit Suisse reported a loss of $7.9 billion and enormous withdrawals from clients’ assets totaling $132.7 billion.
“Credit Suisse has been mismanaged for a long time. They have taken too many risks and had poor control over risks and customers, which has resulted in a protracted series of problems in recent years,” Andreas Håkansson, an analyst at Danske Bank, said.
Although European banks and stock exchanges have been affected by the downward trend in the banking sector caused by U.S. bank failures, European finance ministers have stated that the European System of Central Banks, which comprises the European Central bank and the national central banks of all 27 member states of the EU, has no direct exposure to the failures of the U.S. banks.
“As you can see, we are very cautious, but the situation is very different from what we experienced in 2008, since then numerous precautionary measures have been taken for all banks in the eurozone,” French Finance Minister Bruno Le Maire said.
