Credit Suisse Secures Lifeline as Authorities Rush to Avert Global Bank Crisis

Credit Suisse has secured a $54 billion lifeline from the Swiss central bank, as authorities rush to avert a potential global bank crisis. The Swiss bank announced on Thursday that it will borrow up to US$54 billion from the Swiss central bank to shore up liquidity and investor confidence after a slump in its shares intensified fears about a global banking crisis.

This comes after assurances from Swiss authorities on Wednesday that Credit Suisse met “the capital and liquidity requirements imposed on systemically important banks” and that it could access central bank liquidity if needed.

Credit Suisse’s borrowing will be made under the covered loan facility and a short-term liquidity facility, fully collateralized by high-quality assets. It also announced offers for senior debt securities for cash of up to 3 billion francs. “This additional liquidity would support Credit Suisse’s core businesses and clients as Credit Suisse takes the necessary steps to create a simpler and more focused bank built around client needs,” the bank said.

The 167-year-old bank’s problems have shifted the focus for investors and regulators from the United States to Europe, where Credit Suisse led a sell-off in bank shares after its largest investor said it could not provide more financial assistance because of regulatory constraints.

The concerns about Credit Suisse added to broader banking sector fears sparked by last week’s collapse of Silicon Valley Bank (SVB) and Signature Bank, two US mid-size firms. Investor focus is also on any action by central banks and other regulators elsewhere to restore confidence in the banking system as well as any exposure businesses may have to Credit Suisse.

The US Treasury also said it is monitoring the situation around Credit Suisse and is in touch with global counterparts, a Treasury spokesperson said. Rapid rises in interest rates have made it harder for some businesses to pay back or service loans, increasing the chances of losses for lenders who are also worried about a recession. Traders are now betting that the Federal Reserve, which just last week was expected to accelerate its interest-rate-hike campaign in the face of persistent inflation, may be forced to hit pause and even reverse course.

Bets on a large European Central Bank interest-rate hike at Thursday’s meeting also evaporated quickly on growing fears about the health of Europe’s banking sector. Money market pricing suggested traders now saw less than a 20 percent chance of a 50 basis point rate hike at the ECB meeting.

While Credit Suisse’s announcement helped trim some of the losses, trade was volatile and sentiment fragile. “It does help. It removes an immediate risk. But it confronts us with another choice. The more we do this, the more we blunt monetary policy, the more we have to live with higher inflation – and what is it going to be?” said Damien Boey, chief equity strategist at Barrenjoey in Sydney. “Do bailouts make things better? On the one hand, you are removing a source of risk to the markets which is a clear and present danger. On the other hand, we are feeding into this paradigm of monetary policy bucking within itself.”

The announcement of Credit Suisse’s lifeline comes as many global banks are facing heightened scrutiny and regulation following the 2008 financial crisis. Credit Suisse is the first major global bank to be given an emergency lifeline since the 2008 financial crisis and its problems have raised serious doubts over whether central banks will be able to sustain their fight against inflation with aggressive interest rate hikes.

Investors around the world are closely monitoring the situation and are concerned about the potential for contagion, as the collapse of one bank could have ripple effects throughout the global financial system.

Australian Treasurer Jim Chalmers said on Thursday the country’s banks were well-capitalized and that he had convened a meeting