In response to mounting concerns over a potential global banking crisis, Credit Suisse has announced that it will borrow up to $54 billion from the central bank of Switzerland to address liquidity issues and restore investor confidence.
The announcement, which was made in the middle of the night in Zurich, led to a 24% surge in Credit Suisse shares and helped alleviate some of the losses on stock markets caused by fears of bank runs.
Credit Suisse is the first major global bank to receive an emergency lifeline since the 2008 financial crisis, casting doubt on central banks’ ability to combat inflation through aggressive interest rate hikes.
The Swiss bank has confirmed that it will exercise its option to borrow up to 50 billion Swiss francs ($54 billion) from the central bank, following assurances from Swiss authorities that the bank met the capital and liquidity requirements imposed on systemically important banks and had access to central bank liquidity if needed.
According to JP Morgan analysts, the measures taken by Credit Suisse to address liquidity concerns will give the Swiss bank time to implement its restructuring plan. In a note on Thursday, JP Morgan stated that the combination of measures should be adequate to counteract negative market movements as the market priced in the possible impact of liquidity pressures.
Credit Suisse bank’s borrowing and future in 2023
Following Credit Suisse’s announcement, the cost of insuring exposure to the bank’s debt decreased and the European banking index rose by 2.4%, with stocks of large banks climbing and insurance protection on bonds issued by BNP Paribas, Deutsche Bank, and UBS also falling.
Despite this positive development, Asian stocks remained in negative territory for much of the day, with investors seeking refuge in gold, bonds, and the dollar.
Although Credit Suisse’s statement helped to minimize losses, market activity remained unstable and investor sentiment fragile. The head of Japan’s banking lobby stated that there were no indications that the Japanese financial system was currently affected by a crisis of confidence in Credit Suisse and that Japanese banks are well-capitalized.
Credit Suisse has announced that it will borrow up to $54 billion from Switzerland’s central bank to bolster liquidity and investor confidence, following a decline in its share price that heightened concerns about a global banking crisis.
The bank’s announcement, which came in the middle of the night in Zurich, has prompted a 24% increase in Credit Suisse shares and helped to reverse some of the heavy losses on stock markets that were driven by investor fears over potential bank runs across the world.
Credit Suisse has also announced offers for senior debt securities for cash of up to 3 billion francs. Chief Executive Ulrich Koerner has stated that the bank will focus on facts as it rapidly moves forward with a plan to streamline operations.