Credit Suisse has experienced a loss of confidence in the health of the financial institution following a significant drop in its share value this week. Over the past five days, Credit Suisse shares have fallen 24.34% against the US dollar, eroding confidence amid fears about the global banking system. On Wednesday around 9 pm ET, Credit Suisse announced that it was strengthening its liquidity by borrowing 50 billion Swiss francs ($54 billion) from the Swiss National Bank (SNB). As concerns about the global banking system continue to spread, bailout measures begin to emerge in the US and abroad.
Emergency measures emerge to stabilize global banking system as Credit Suisse and other banks face uncertainty
Credit Suisse stock hit a record low on Wednesday after the Saudi National Bank refused to help the Zürich, Switzerland-based bank. The bank’s problems have fueled fears of bank contagion after three major US banks collapsed last week. Some market strategists predict that Credit Suisse will be next to fall, and the true value of Credit Suisse’s share price has been questioned. After a tumultuous day on Wednesday, Swiss officials announced that they were working to stabilize the financial institution. Both the Swiss National Bank and FINMA issued statements support
ONLY IN: The Swiss National Bank will bail out Credit Suisse if necessary.
—Sasha Hodder (@sashahodler) March 15, 2023
Shortly after 9 pm ET, Credit Suisse issued a Press release announcing that it had taken “decisive steps to preemptively strengthen liquidity.” Credit Suisse stated that it intended to exercise the bank’s option to borrow up to CHF 50 billion from the Swiss National Bank (SNB) under a covered loan facility as well as a short-term liquidity facility, which would be fully guaranteed by high quality assets. The company also announced public tender offers for US dollar-denominated senior debt securities and euro-denominated senior debt securities, maturing on March 22, 2023, subject to terms and conditions.
“These steps demonstrate decisive action to strengthen Credit Suisse as we continue our strategic transformation to deliver value to our customers and other stakeholders,” the bank’s chief executive officer, Ulrich Koerner, said in a statement. “We thank the SNB and FINMA as we execute our strategic transformation. My team and I are determined to move quickly to offer a bank that is simpler and more focused around customer needs.”
Credit Suisse gets a bailout of $54,700,000,000.
This is more than the GDP of most countries in the world and should keep them going for a few more days.—David Kurten (@davidkurten) March 16, 2023
The SNB bailout of Credit Suisse marks the second major bank bailout in less than a week, following the bailout of Silicon Valley Bank (SVB) and Signature Bank (SNBY) by the Federal Reserve, Treasury and Federal Corporation Deposit Insurance Agency (FDIC) . However, American politicians are emphasizing that these emergency measures are not comparable to the bank bailouts of 2008.
During the Great Recession, bank bailouts were widespread, beginning with the March 2008 Bear Stearns capital injection in the US and then spreading abroad. In the UK, the Royal Bank of Scotland and Lloyds TSB received government aid in October 2008, while in Iceland, the government nationalized the country’s three largest banks that same month.
At the time, other countries, including Germany, France, and Switzerland, implemented various bailout measures during the 2008 financial crisis. The US allowed troubled investment bank Lehman Brothers to fail, but decided to bail out Fannie Mae, Freddie Mac and AIG in 2008. Credit Suisse was one of the few banks that managed to survive the shock of the 2008 economic crisis without a bailout. of the Swiss central bank.
While many banks sought bailouts during the Great Recession, Credit Suisse raised capital from the Qatar Investment Authority and other sources by selling convertible securities and launching a public share offering. Although the current macroeconomic environment is not exactly the same as it was in 2008, some experts anticipate that this economic downturn could be worse. This time Credit Suisse’s hand was forced, and the bank had to borrow 50 billion Swiss francs or possibly face the same fate as SVB and SNBY.
What do you think will be the long-term impact of the Credit Suisse bailout on the global banking system? Share your thoughts in the comments section below.
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