Credit Suisse has announced it will borrow up to $54 billion from the Swiss central bank to strengthen its liquidity after fears of a broader bank deposit crisis intensified due to the slump in its shares. This move comes after the collapse of Silicon Valley Bank (SVB) last week, which sparked contagion fears in financial markets.
Credit Suisse Liquidity Woes
Credit Suisse has been facing its own issues, and analysts have raised questions about the impact of the bank’s problems on the European banking system’s systemic risks. Despite this, Credit Suisse’s existential questions and the closure of banks in the US have caused volatility in the European markets. One significant risk in the near term is the impact on liquidity in the interbank market and the credit market.
Credit Suisse Takes “Decisive Action”
Credit Suisse’s borrowing of up to $54 billion from the Swiss central bank is a “decisive action” to strengthen its liquidity. It will undoubtedly stem the tide in the short term, but it is unclear whether this move will solve Credit Suisse’s long-term problems.
Market Analysts’ Opinions
Market analysts have different opinions on the impact of Credit Suisse’s liquidity woes on the financial system, as well as the effectiveness of the Swiss National Bank’s offer to lend Credit Suisse 50 billion Swiss francs.
- Redmond Wong, Greater China Strategist at Saxo Markets, Hong Kong According to Redmond Wong, Credit Suisse has its own issues that do not necessarily spill over into systemic risks of the European banking system. Nonetheless, existential questions about a large international bank based in Europe soon after the closure of a couple of banks across the pond in the U.S. certainly stirred up risk-off sentiment and caused volatility in the European markets. A major risk in the near term is the impact on liquidity in the interbank market and the credit market.
- Tony Sycamore, Market Analyst at IG Group, Sydney Tony Sycamore thinks that Credit Suisse has to get itself out of the rut it’s been in for over a decade. While Credit Suisse will take up the Swiss National Bank’s offer for 50 billion Swiss franc, whether it’s enough to solve Credit Suisse’s problems in the longer term probably is debatable. He doesn’t think that the liquidity crisis will spread to other banks, with the French banks, as they learned their lessons during the European sovereign crisis. However, lending standards will be tighter, and there will be more regulations about lending, leading to less money pumping into the economy, effectively deflationary, and restricting growth.
- Marty Dropkin, Head of Equities for Asia Pacific at Fidelity International, Hong Kong Marty Dropkin believes that markets could get messy amid the fallout from Silicon Valley Bank’s collapse, alongside ongoing uncertainty over the future path of the global economy and interest rates. Persistent inflation and hot labor markets force market participants to change their outlook on the path of interest rates.
- Charu Chanana, Market Strategist, Saxo Markets, Singapore Charu Chanana thinks that Credit Suisse’s current situation and the market response are a signal of how vulnerable sentiment is at this point. The unfolding events are sending shockwaves about where growth is headed from here, which will also bring Asian markets under pressure. Meanwhile, the offset from China isn’t proving enough as data hasn’t really outperformed expectations for now.
In conclusion, Credit Suisse’s decision to borrow up to $54 billion from the Swiss central bank to strengthen its liquidity has brought some brief stability to the markets. However, concerns over the bank’s situation have sparked fears of a banking crisis, and analysts remain divided on whether this move will be enough to solve Credit Suisse’s problems in the longer term. The fallout from Silicon Valley Bank’s collapse, alongside ongoing uncertainty over the future path of the global economy and interest rates, has created a hypersensitive market that is vulnerable to negative news. Governments and central banks must continue to take decisive action to ensure that the banking system remains stable and that there is enough liquidity in the system to prevent runs on banks. As we move forward, it will be critical to monitor how this situation unfolds and what impact it may have on the broader financial system.