WHAT YOU NEED TO KNOW!
- Credit Suisse shares surged 25% after the Swiss central bank agreed to loan the bank up to 50 billion francs to bolster confidence in the country’s second-biggest lender and blunt concerns about the international financial system following the collapse of two U.S. banks.
- The Swiss National Bank said it was prepared to back Credit Suisse because it meets the higher capital and liquidity requirements imposed on “systemically important banks,” adding that the problems that have hit some U.S. banks don’t “pose a direct risk of contagion” to Switzerland.
- European finance ministers said this week that their banking system has no direct exposure to the U.S. bank failures.
Credit Suisse, the second-largest bank in Switzerland, received a 50 billion franc ($54 billion) loan from the Swiss National Bank to address concerns about its stability and to increase confidence in the financial system following the collapse of two U.S. banks.
The announcement caused a surge in Credit Suisse’s shares, which rose as much as 33% before settling at a 25% gain. The loan will give Credit Suisse time to complete its ongoing reorganization, designed to create a “simpler and more focused bank,” according to Chief Executive Ulrich Koerner.
The Swiss National Bank said it was willing to back Credit Suisse because the bank meets the higher capital and liquidity requirements imposed on “systemically important banks.” It also emphasized that the issues facing some U.S. banks don’t pose a direct risk of contagion to Switzerland.
This loan is an effort to build trust and assure depositors that their money is safe. Regulators hope that this will be enough to prevent a panic and prevent people from rushing to withdraw their money.
Credit Suisse has had a number of problems, including bad bets on hedge funds, repeated shake-ups of its top management, and a spying scandal involving rival bank UBS. Credit Suisse is one of 30 so-called globally systemically important banks, or G-SIBs, and is subject to international rules that require it to maintain financial buffers against losses.
Its stock has suffered a long and sustained decline, falling from a valuation of more than 80 francs ($86.71) in 2007 to just over 2 francs today. Despite this, Credit Suisse has multiple subsidiaries outside Switzerland and handles trading for hedge funds.
European finance ministers have stated that their banking system has no direct exposure to the U.S. bank failures. However, Andrew Kenningham, chief Europe economist for Capital Economics, believes that Credit Suisse is “a much bigger concern for the global economy” than the midsize U.S. banks that collapsed.
He notes that Credit Suisse was widely seen as the weakest link among Europe’s large banks, but it is not the only bank that has struggled with weak profitability in recent years. European banking stocks rose modestly after the announcement of the loan to Credit Suisse.