Authorities Rush to Avert Global Bank Crisis as Credit Suisse Secures $54 Billion Lifeline
Credit Suisse has announced that it will borrow up to $54bn from the Swiss central bank to shore up liquidity and investor confidence. This move followed fears about a global banking crisis after a slump in Credit Suisse’s shares. The announcement helped restore confidence in wider financial markets and reversed some of the heavy share market losses that were experienced on Wednesday and into Asia trade on Thursday. Credit Suisse is the first major global bank to receive an emergency lifeline since the 2008 financial crisis. Credit Suisse’s borrowing will be made under the covered loan facility and a short-term liquidity facility, fully collateralised by high quality assets. It also announced offers for senior debt securities for cash of up to 3 billion francs.
Credit Suisse Chief Executive Ulrich Koerner had earlier on Wednesday sought to reassure investors about the lender’s strong liquidity, stating that “Our capital, our liquidity basis is very, very strong,” and that “We fulfil and overshoot basically all regulatory requirements.” Credit Suisse’s problems have shifted the focus for investors and regulators from the United States to Europe. Credit Suisse led a selloff in bank shares after its largest investor said it could not provide more financial assistance because of regulatory constraints.
On Wednesday, Credit Suisse shares led a 7% fall in the European banking index, while five-year credit default swaps for the flagship Swiss bank hit a new record high. The investor exit for the doors raised fears of a broader threat to the financial system, and two supervisory sources told Reuters that the European Central Bank had contacted banks on its watch to quiz them about their exposures to Credit Suisse.
The concerns about Credit Suisse added to broader banking sector fears sparked by last week’s collapse of Silicon Valley Bank and Signature Bank, two U.S. mid-size firms. Investor focus is also on any action by central banks and other regulators elsewhere to restore confidence in the banking system. Policymakers in Australia and South Korea sought to reassure markets on Thursday that banks in their jurisdictions were well-capitalised.
While Credit Suisse’s announcement helped trim some early losses, trade was volatile and sentiment fragile. The next important step needs to come from Credit Suisse’s CEO to display their new strategy to the public sooner than later to reassure the markets.