Credit Suisse announced on Thursday it was taking “decisive action” to increase its liquidity by using its option to borrow from the Swiss National Bank up to 50 billion Swiss francs ($54 billion).
Swiss regulators promised a liquidity lifeline to Credit Suisse, an unusual move by a central bank after the leading Swiss lender’s shares plummeted by 30% on Wednesday.
Credit Suisse stated that the borrowing will be done via the covered loan facility and a short-term liquidity facility, both of which will be completely collateralized by high-quality assets.
It also launched bids for senior debt instruments worth up to 3 billion Swiss francs in cash. “This additional liquidity would support Credit Suisse’s core businesses and clients as Credit Suisse takes the necessary steps to create a simpler, more focused bank built around client needs,” it said.
In a joint statement, the Swiss financial regulator FINMA and the nation’s central bank moved to calm investor fears over Credit Suisse on Wednesday, saying it “meets the capital and liquidity requirements imposed on systemically important banks.” They said bank liquidity is available from the central bank if needed.
According to the individuals familiar with the matter, the statement was released after a major government and at least one bank put pressure on Switzerland to act, as the lender became embroiled in a crisis of confidence following the collapse of Silicon Valley Bank the previous week. Credit Suisse welcomed the Swiss National Bank and FINMA’s declarations of support.
Credit Suisse would be the first big global bank to get such a lifeline after the 2008 financial crisis, while central banks have provided liquidity to banks more broadly in times of market stress, such as the coronavirus outbreak.
SVB’s downfall, followed by that of Signature Bank two days later, sent global bank equities into a tail-spin this week, with investors rejecting pledges from US President Joe Biden and emergency measures providing banks with extra capital.
By Wednesday, the attention had switched from the United States to Europe, where Credit Suisse led a sell-off in bank stocks after its main investor said it could not offer more financial aid due to regulatory limits.
To address the fears, FINMA and the Swiss central bank said there was no evidence of a direct threat of contagion for Swiss institutions from the U.S. banking market instability. Earlier, Credit Suisse equities plummeted 7% in the European banking index, as the leading Swiss bank’s five-year credit default swaps (CDS) set a new high.
