Credit Suisse gave $54 billion a lifeline to prevent a global banking crisis

Credit Suisse said on Thursday it would borrow up to $54 billion from the Swiss Central Bank to boost liquidity and investor confidence after a decline in its shares intensified concerns about a global financial crisis.

The Swiss bank’s announcement helped stem the sell-off in financial markets in Asian morning trade on Thursday, after grueling sessions in Europe and the United States overnight as investors worried about a potential sell-off in global bank deposits.

Credit Suisse said in its statement early Thursday that it would exercise the option to borrow from the central bank for up to $54 billion. This followed assurances from Swiss authorities on Wednesday that Credit Suisse meets “the capital and liquidity requirements imposed on systemically important banks” and that it has access to central bank liquidity if needed.

Credit Suisse is the first major global bank to be given an emergency lifeline since the 2008 financial crisis, and its troubles have raised serious doubts about whether central banks will be able to continue their fight against inflation by dramatically raising interest rates.

Asian stocks followed Wall Street stumbled on Thursday Investors bought gold, bonds and dollars. And while the bank’s announcement helped trim some of those losses, trade was choppy and sentiment fragile.

“It helps. It removes immediate risk. But it does confront us with another choice. The more we do it, the less monetary policy we tighten, the more we have to live with higher inflation — and what would it be?” said Damien Bowie, chief equity strategist at Barrenjoey in Sydney .

“Are bailouts making things better? On the one hand, you are removing a source of risk to markets that is a clear and present risk. On the other hand, we are feeding into this model of self-defeating monetary policy.”

Credit Suisse borrowing It will be offered under Covered Loan Facility and Short Term Liquidity Facility, fully secured by high quality assets. It also announced large debt offerings in cash, up to $3.2 billion.

“This additional liquidity will support the core business of Credit Suisse’s clients as Credit Suisse takes the necessary steps to create a simpler, more focused bank built around clients’ needs,” the bank said.

Earlier on Wednesday, Credit Suisse CEO Ulrich Korner sought to reassure investors about the bank’s solid liquidity.

“Our capital and liquidity basis is very strong,” Korner told the media. “We basically meet and exceed all regulatory requirements.”

European EPICENTER

The 167-year-old bank’s troubles have shifted the focus of investors and regulators from the United States to Europe, with Credit Suisse leading a sell-off in bank shares after the bank’s largest investor said it could not offer more financial help due to regulatory restrictions.

Concerns about Credit Suisse added to the concerns of the broader banking sector sparked by the collapse of Silicon Valley Bank and Signature Bank, two medium-sized US companies, last week.

Investors’ focus is also on any action taken by central banks and other regulators elsewhere to restore confidence in the banking system as well as any business exposure Credit Suisse may have.

The demise of the Silicon Valley bank last week, followed by the collapse of the signature bank two days later, sent global bank stocks on a rollercoaster ride this week, with investors discounting affirmations From US President Joe Biden and emergency steps Giving banks access to more financing.

On Wednesday, Credit Suisse shares topped a 7% fall In the European Banks Index, while the five-year credit default swaps of the leading Swiss bank hit a new record high.

Investors’ out-of-doors has sparked fears of a broader threat to the financial system, and two supervisory sources told Reuters that the European Central Bank has Contacted banks In full view of them about their exposure to Credit Suisse.

The US Treasury also said it was monitoring the situation around Credit Suisse and was in contact with global counterparts, a Treasury spokesperson said.

Journey to safety

Rapid hikes in interest rates have made it difficult for some companies to repay loans or service loans, increasing the chances of losses for lenders who are also worried about a recession.

merchants bet now That the Fed, which was only expected last week to accelerate its campaign to raise interest rates in the face of persistent inflation, may have to pause and even reverse course.

Bets on a big hike in the European Central Bank’s interest rate Thursday meeting Concerns about the health of Europe’s banking sector quickly evaporated. Money market prices are indicating that traders now see less than a 20% chance of a 50bps rate hike at the ECB meeting.

The anxiety created by the demise of the SVB has also prompted depositors to look for new homes to get their money.

Ralf Hammers, chief executive of Credit Suisse’s rival UBS, said the market turmoil had sent more money its way, and Christian Swing, chief executive of Deutsche Bank, said the German bank had also seen deposits come in.