Credit Suisse Intervention Avoided ‘Financial Crisis,’ Swiss National Bank Chairman Says
The comments below are an edited and abridged synopsis of an article by Elliot Smith
Credit Suisse’s Chairman Thomas Jordan said recently that the central bank’s interventions during the fall of Credit Suisse were “crucial” to avoid a “financial crisis” worldwide.
The SNB supplied a lifeline to the stricken lender after a collapse in shareholder and investor confidence led to massive customer outflows. As part of this, SNB injected 168 billion Swiss francs (US$185 billion) in emergency liquidity.
This bought time for the central bank, alongside regulator FINMA and the Swiss authorities, to broker Credit Suisse’s emergency sale to rival UBS in March for a discounted price of just 3 billion Swiss francs.
UBS announced in August that it had ended Credit Suisse’s government and central bank protections after the takeover, including an emergency liquidity assistance plus a loan of 50 billion Swiss francs obtained from the SNB.
Jordan suggested that without the loan, which was not secured in the manner typically required by the SNB, Credit Suisse risked being unable to meet its financial obligations, jeopardizing systemic stability.
Jordan’s comments echoed those of FINMA CEO Urban Angehrn, who suggested in April that allowing Credit Suisse to fall into bankruptcy would have crippled the Swiss economy and likely resulted in deposit runs on other banks.
However, Jordan noted that there were important lessons to be learned regarding liquidity regulations and protecting against faster and larger outflows of customer deposits.
The Swiss government, SNB and FINMA faced criticism and legal challenges over their handling of the takeover, particularly over the lack of shareholder input and the wipeout of $17 billion of Credit Suisse’s additional tier-one bonds, which were written down to zero while common stockholders received payouts.