The lower house of Switzerland’s parliament has rejected the 109 billion Swiss francs of financial guarantees that the government gave to Credit Suisse as part of a rescue package.
This vote was taken on Tuesday, during an extraordinary government session that was called to discuss Credit Suisse’s recent struggles as the parliamentarians voted against the measure.
On the same day, the upper house of Switzerland’s parliament voted in favor of the government guarantees. However, both of these votes are largely symbolic because the state has already committed the funds to Credit Suisse.
This means that lawmakers cannot overturn the government’s decision to provide financial assistance to the struggling bank.
To provide some context, Credit Suisse has been facing financial difficulties in recent months due to its exposure to Archegos Capital Management, a family office that collapsed in March last year.
Credit Suisse was one of several banks that had provided margin loans to Archegos, and when the family office was unable to meet its margin calls, the banks were left with significant losses.
In response to this situation, the Swiss government provided Credit Suisse with a rescue package that included the 109 billion Swiss francs of financial guarantees. These guarantees were intended to help the bank weather the financial storm and avoid a more serious crisis.
However, some lawmakers in Switzerland have expressed concern about the government’s decision to provide these guarantees. They argue that the guarantees could be seen as a form of state aid, which is not allowed under European Union rules.
They also worry that the guarantees could create a moral hazard, encouraging other banks to take on excessive risk knowing that the government will bail them out if things go wrong.
Credit Suisse Struggle to Continue in Swiss Parliament
Despite these concerns, the government has stood by its decision to provide the guarantees to Credit Suisse. The government has argued that the guarantees are necessary to ensure the stability of the Swiss financial system and to prevent a broader economic crisis.
The impact of the lower house of Switzerland’s parliament voting to reject the financial guarantees that the government provided to Credit Suisse is likely to be limited. Although the vote is a symbolic expression of concern and disapproval, it does not have any immediate practical effect.
This is because the guarantees have already been provided to Credit Suisse, and the state has committed the funds. The vote cannot undo this decision, and lawmakers do not have the power to overturn it. In other words, the guarantees are already in place, and Credit Suisse can rely on them if needed.
However, the vote does highlight the political and public scrutiny that Credit Suisse is facing in Switzerland. It shows that some lawmakers are concerned about the government’s decision to provide the guarantees and the potential risks and consequences of doing so.
This could lead to increased pressure on Credit Suisse to improve its risk management and governance practices and to avoid taking on excessive risk in the future. It could also lead to more public and political scrutiny of the banking sector in Switzerland and calls for greater regulation and oversight to prevent similar situations from occurring in the future.
Furthermore, the rejection of the guarantees by the lower house of parliament could damage the reputation of Credit Suisse and the Swiss financial system more broadly. It could erode investor confidence and lead to increased skepticism about the stability and safety of the Swiss banking system.
Overall, the impact of the lower house’s vote is largely symbolic and does not have any immediate practical consequences. However, it does reflect the concerns and pressures that Credit Suisse and the Swiss financial system are facing, and it could have longer-term implications for the banking sector and the country’s reputation.