Crisis in the Banking Sector: Credit Suisse Group AG Borrows from Swiss National Bank
The banking sector is facing a crisis as three US banks have collapsed in the last week, including the second-largest US bank failure ever, Silicon Valley Bank. Credit Suisse, one of the world’s largest investment banks, saw its shares tumble 30% Wednesday morning, adding to fears of a broader meltdown in the global financial system.[0]
Credit Suisse Group AG, the Swiss bank whose shares tumbled Wednesday, said it would exercise its option to raise as much as 50 billion Swiss francs, equivalent to $53.7 billion, from the Swiss National Bank in a bid to stanch liquidity concerns.[1] The bank also announced overnight that it will buy back 3 billion Swiss francs worth of its debt, as part of its move to calm investors’ nerves.[2]
The European Central Bank (ECB) had previously signaled the likelihood of another interest rate increase of 50 basis points as underlying Eurozone inflation remained elevated, but the recent banking turmoil could prompt the policy makers to opt for a more cautious stance.[3]
Throughout Europe, major banks saw their share prices get hammered in response to Credit Suisse’s fall.[0] Analysts point to rising interest rates and their impact on bond prices as a key factor causing serious ructions in the sector.
Neil Shearing, chief economist at Capital Economics, wrote in a note to clients: “The problems at Credit Suisse are very different to those that brought down SVB a few days ago. But they serve as a reminder that as interest rates rise, vulnerabilities are lurking in the financial system. Key areas to monitor are smaller European banks and shadow banks.”[4]
Shares of European banks surged on Thursday following the announcement that Credit Suisse Group AG is receiving a loan from the Swiss National Bank in order to bolster its liquidity.[5] An index of Europe’s bank stocks jumped 3.3% at the start of trading.[2] It remains to be seen how the ECB will respond to the current turmoil in the banking sector.
0. “Credit Suisse Teeters as Shares Slide 30 Percent” The Daily Beast, 15 Mar. 2023, https://www.thedailybeast.com/credit-suisse-teeters-as-shares-slide-28-percent
1. “Credit Suisse Will Borrow Up to $53.7 Billion” The Wall Street Journal, 16 Mar. 2023, https://www.wsj.com/articles/credit-suisse-says-it-will-borrow-up-to-50-billion-swiss-francs-ac469cc3
2. “Credit Suisse shares surge after bank agrees £44bn lifeline – business live” The Guardian, 16 Mar. 2023, https://www.theguardian.com/business/live/2023/mar/16/credit-suisse-borrowing-liquidity-swiss-francs-central-bank-ecb-lagarde-jeremy-hunt-business-live
3. “European stocks higher; Credit Suisse soars on SNB support line By Investing.com” Investing.com, 16 Mar. 2023, https://www.investing.com/news/stock-market-news/european-stocks-higher-credit-suisse-soars-on-snb-support-line-3032003
4. “Credit Suisse's $50 billion lifeline calms bank panic” CNN, 16 Mar. 2023, https://www.cnn.com/2023/03/16/investing/credit-suisse-snb-loan-shares/index.html
5. “Europe Bank Shares Rebound After Credit Suisse Liquidity Boost” MarketWatch, 16 Mar. 2023, https://www.marketwatch.com/story/europe-bank-shares-rebound-after-credit-suisse-liquidity-boost-67bcc54e
