Will Credit Suisse Resist or Banks Is in a Rush Again – DW – 03/16/2023
Could problems at Credit Suisse spark another global banking crisis? The difficulties of the second largest financial institution in Switzerland have been known for several years, but after the collapse of the last 7 days of American banks Silicon Valley Bank, Signature Bank and Silvergate Capital this issue has become a particular concern for investors around the world.
Credit Suisse and the “domino effect”
In principle, Credit Suisse is one of the 30 largest systemic banks in the world, and its collapse would certainly cause a “domino effect” in the entire global banking system. On the other hand, this is well understood by financial regulators, who under no circumstances are ready to allow the repetition of the history of Lehman Brothers – the American bank that went bankrupt in 2008, which provoked the global banking crisis of 2007-2008.
Therefore, the financial authorities are acting promptly this time. Already on Wednesday evening, March 15, the Swiss National Bank announced that it would support Credit Suisse by opening a credit line in the amount of 51 billion euros. On Thursday morning it became known that the offer had been accepted. And by the middle of the day on Thursday, the European Central Bank also played its role in stabilizing the markets. In recent days, analysts have feared that the current surge in banking fever will see the ECB abandon its plans to tackle inflation in Europe decisively and raise interest rates at an accelerated pace. Such a decision would only confirm the fears of world markets, said Clemens Fuest, head of the Munich-based ifo research institute.
But no: the European Central Bank showed firmness by drastically raising its key rate by 50 basis points on March 16, signaling to financial markets that the situation in the banking sector is not critical.
Shareholder of Credit Suisse refused to support the bank
Credit Suisse’s problems have been going on for more than a year. The bank is shattered by scandals due to cooperation with suspicious business partners who went bankrupt and led to huge losses for Credit Suisse. This, in turn, led to a massive outflow of funds from the financial institution, the stability of which began to cause concern: last year alone, its clients withdrew about 123 billion Swiss francs (about 126 billion euros) from their accounts. The picture was completed by frequent changes in the leadership of the financial and credit institution and an inefficient internal structure. Well, when, against the backdrop of the collapse of American banks, the largest shareholder of Credit Suisse – Saudi National Bank – on Wednesday refused to provide the bank with additional funds, Credit Suisse stock quotes suddenly collapsed by 30%, updating a historical low.
How will events develop further? After the intervention of the central banks of Switzerland and the eurozone, world stock exchanges calmed down somewhat. However, Credit Suisse’s systemic problems have not disappeared. The peculiarity of this bank is that its reorganization is very late, says Hans-Peter Burghof, a scientist from the University of Hohenheim. Other troubled banks, he says, “such as Deutsche Bank or Commerzbank, have already overcome this difficult period” and are in a much better position. There are no serious threats to their stability, he emphasized, speaking on German television, and Finance Minister Christian Lindner (Christian Lindner).
Christoph Schalast, an expert at the Frankfurt School of Finance and Management, agrees with him. Moreover, the collapse of three American banks and the problems of Credit Suisse may even increase the attractiveness of the German banking system for German and foreign investors. Well, what about the future? Credit Suisse, then, according to the expert, everything will depend on the trust of its customers in the bank. On Thursday, the quotes of its shares, which experienced a record fall the day before, rose slightly.