Credit Suisse announced on Thursday that it would borrow up to $54 billion from the Swiss central bank to stabilize its liquidity amid growing fears of a widespread banking crisis.
The Swiss bank’s troubles have shifted investor and regulatory attention from the United States to Europe, where Credit Suisse triggered a sharp selloff in bank shares following its largest investor’s declaration that it could not provide more financial support due to regulatory limits.
Regulators in Switzerland attempted to calm market jitters on Wednesday, but concerns around Credit Suisse persisted, adding to anxieties already heightened by the collapse of Silicon Valley Bank and Signature Bank in the U.S.
Following these events, Asian stocks fell in line with Wall Street, while investors moved toward safer assets such as gold, bonds, and the dollar, causing market volatility ahead of a European Central Bank meeting later in the day.
In its early morning statement, Credit Suisse confirmed that it had exercised its option to borrow up to 50 billion Swiss francs ($54 billion) from the Swiss National Bank.
Investors are now keenly watching for any measures by central banks and regulators in Asia to restore confidence in the banking system, as well as to assess any regional exposure to Credit Suisse.
The Swiss financial regulator FINMA and the Swiss National Bank, in a joint statement, reassured investors that Credit Suisse “meets the capital and liquidity requirements imposed on systemically important banks,” and confirmed that the bank could access liquidity support if needed.
Credit Suisse expressed its appreciation for the backing from the Swiss National Bank and FINMA.
This lifeline marks the first time a major global bank has received such support since the 2008 financial crisis, though central banks have generally provided liquidity to banks during periods of market stress, such as the COVID-19 pandemic.
The failure of SVB and Signature Bank last week caused global bank stocks to fluctuate wildly, with many investors ignoring reassurances from U.S. President Joe Biden and new emergency measures aimed at increasing banks’ access to funds.
FINMA and the Swiss central bank indicated that there were no signs of direct contagion risk to Swiss banks from the U.S. banking turmoil.
Earlier, Credit Suisse shares led a 7% decline in the European banking index, while the bank’s five-year credit default swaps (CDS) soared to a new record high, reflecting increased market concerns.
The situation raised fears of a broader systemic threat, prompting the European Central Bank to reach out to banks under its jurisdiction to gauge their exposure to Credit Suisse, according to two supervisory sources cited by Reuters.
In the U.S., the Treasury Department stated it is closely monitoring the situation and remains in contact with global partners.
American banks have been managing their exposure to Credit Suisse, and industry sources suggest that the risks from the Swiss lender remain under control for now.
Rapid interest rate hikes have increased the difficulty for some businesses to repay or service loans, raising the risk of losses for lenders, who are also wary of a potential recession.
As a result of the turmoil, traders are now betting that the Federal Reserve, which had been expected to continue raising interest rates to combat inflation, might pause or even reverse course.
Expectations for a large rate hike by the European Central Bank at its Thursday meeting also diminished quickly as Credit Suisse’s troubles intensified concerns about the stability of Europe’s banking sector.
Money market pricing indicated less than a 20% probability of a 50 basis point hike at the meeting.
The collapse of SVB has also led depositors to move their funds to safer institutions.
UBS CEO Ralph Hamers and Deutsche Bank CEO Christian Sewing both reported an influx of deposits amid the market turbulence, reflecting increased concern among depositors.
Credit Suisse’s swift move to secure a $54 billion loan from the Swiss National Bank highlights the increasing volatility in global financial markets and the urgent need for stabilization measures to restore investor confidence.
