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Credit Suisse on Thursday said it was taking “decisive action” to bolster its liquidity, borrowing up to $54 billion from the Swiss central bank after the fall in its shares heightened fears of a broader bank deposit crisis.
The Swiss bank’s troubles have shifted the attention of investors and regulators from the US to Europe, where Credit Suisse sold the bank’s shares after its biggest investor said it could not provide more bailouts due to regulatory restrictions.
On Wednesday, regulators in the private banking center tried to ease investor concerns about Credit Suisse, which stoked broader fears sparked by the collapse of Silicon Valley Bank and Signature Bank, two US midsize companies, last week.
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Shares of Credit Suisse fell to a new record low. What’s happening?
Asian equities extended Wall Street’s slide Thursday as investors bought gold, bonds and the dollar, leaving markets on edge ahead of a European Central Bank meeting later in the day. The bank’s announcement in the early European morning helped cut some of those losses, although trading was volatile.
In a statement Thursday, Credit Suisse said it would exercise its option to borrow up to 50 billion Swiss francs ($54 billion) from the Swiss National Bank.
Investors’ attention is now focused on any moves by central banks and other regulators in Asia to restore confidence in the banking system, as well as any risks that regional businesses may pose to Credit Suisse.
In a joint statement on Wednesday, Swiss financial regulator FINMA and the country’s central bank sought to allay investor concerns about Credit Suisse, saying it “meets the capital and liquidity requirements of critically important banks.” They said the bank could access liquidity from the central bank if needed.
Credit Suisse said it welcomes the announcement of support from the Swiss National Bank and FINMA.
Credit Suisse will be the first major global bank to be given such a lifeline since the 2008 financial crisis, although central banks have provided liquidity more widely to banks during times of market stress, including the coronavirus pandemic.
The demise of SVP last week and Signature Bank two days later sent global bank stocks on a rollercoaster ride this week as investors ignored reassurances from US President Joe Biden and emergency measures to give banks access to more funding. .
FINMA and the Swiss central bank said there was no indication of a direct risk of contagion to Swiss institutions due to the turmoil in the US banking market.
Earlier, Credit Suisse led the European banking index down 7% as five-year credit default swaps (CADS) for the flagship Swiss bank hit a new record high.
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S&P/TSX Composite falls more than 300 points on bank fears and mixed US markets
Exiting investors have raised concerns about a broader threat to the financial system, and two supervisory sources told Reuters that the European Central Bank has contacted banks to inquire about their exposure to Credit Suisse.
The US Treasury also said it is monitoring the Credit Suisse situation and is in touch with global partners, a Treasury spokesman said.
In the United States, major banks have managed their Credit Suisse risk in recent months and view lender-related risk as manageable so far, according to three industry sources who declined to be identified due to the difficult situation.
Rapidly rising interest rates have made it difficult for some businesses to repay or service loans, increasing the chance of losses for lenders who are also worried about the recession.
Traders are now betting that the Federal Reserve, which was expected to speed up its rate hike campaign last week in the face of sustained inflation, may be forced to pause or even reverse course.
Betting on a massive European Central Bank rate hike also quickly evaporated at Thursday’s meeting as the Credit Suisse debacle heightened concerns about the health of Europe’s banking sector. Money market pricing suggests that traders now see less than a 20% chance of a 50 basis point rate hike at the ECB meeting.
The anxiety caused by the demise of the SVP also prompted savers to look for new homes for their money.
Ralph Hammers, CEO of Credit Suisse rival UBS, said the market turmoil had attracted more money, while Deutsche Bank CEO Christian Scheuing said the German lender had also seen deposits come in.
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