Switzerland’s central bank has agreed to lend Credit Suisse up to $54 billion

Credit Suisse, a beleaguered banking giant, has announced that it will borrow up to 50 billion francs ($54 billion; £44.5 billion) from the Swiss central bank to bolster its finances.

The bank stated that it was taking firm steps to improve its liquidity as it aimed to simplify its operations. Following Credit Suisse’s disclosure that it had identified “weakness” in its financial reporting, the company’s shares dropped 24% on Wednesday, prompting a general sell-off on European markets and fears of a wider financial crisis.

The bank has said that its borrowing plans represent “decisive action to strengthen [its] position.”

“My team and I are resolved to move forward rapidly to deliver a simpler and more focused bank built around client needs,” Credit Suisse’s chief executive Ulrich Koerner said in a statement.

Last week saw the emergence of issues within the US banking industry as Silicon Valley Bank, the country’s 16th largest bank, collapsed, followed by the collapse of Signature Bank two days later.

Additionally, the Saudi National Bank, a significant investor, announced that it would not be providing additional funds to Credit Suisse after its shares took a significant hit on Wednesday.

These concerns then spread throughout financial markets, resulting in a sharp decline in all major indexes.

“The problems in Credit Suisse once more raise the question whether this is the beginning of a global crisis or just another ‘idiosyncratic’ case,” wrote Andrew Kenningham of Capital Economics.

The Swiss National Bank, which is Switzerland’s central bank, and the Swiss Financial Market Supervisory Authority sought to calm investor fears, saying they were ready to help Credit Suisse if necessary.

Strict rules apply to Swiss financial institutions to “ensure their stability” and Credit Suisse meets the requirements for banks considered systemically important, the regulators said.

“There are no indications of a direct risk of contagion for Swiss institutions due to the current turmoil in the US banking market,” they said in a joint statement.

The BBC understands that the Bank of England has been in touch with Credit Suisse and the Swiss authorities to monitor the situation.

In recent years, Credit Suisse has been plagued by a series of scandals, including allegations of money laundering and other problems. The bank suffered losses in 2021 and 2022, its worst performance since the 2008 financial crisis, and has cautioned that it does not anticipate returning to profitability until 2024.

Before this week, the value of Credit Suisse’s shares had already plummeted by approximately two-thirds due to customer withdrawals. On Tuesday, the bank’s announcement of a “material weakness” in its financial reporting controls caused renewed concerns among investors.

These fears were compounded by the chairman of the Saudi National Bank, the bank’s largest shareholder, stating that it could not purchase additional shares due to regulatory restrictions.

Despite Credit Suisse’s assertion that its financial position was not a cause for alarm, the bank’s shares dropped by 24% on Wednesday. Other banks hurried to reduce their exposure to Credit Suisse, and prime ministers in Spain and France made statements in an effort to assuage concerns.

Following the closure of Silicon Valley Bank (SVB), which specialized in lending to technology companies, by US regulators on Friday, fears have emerged that other banks could face similar difficulties. This was the largest failure of a US bank since 2008, and HSBC purchased SVB’s UK branch for £1.

US regulators guaranteed all deposits at both SVB and New York-based Signature Bank, which also went bankrupt in the aftermath of the SVB collapse. However, trading in bank shares has been volatile this week, with the Stoxx Europe banking share index dropping 7% on Wednesday.

The Dow fell by almost 0.9% due to the decline of shares in both small and large banks in the US, while the S&P 500 fell 0.7%. The UK’s FTSE 100 suffered its largest one-day decline since the beginning of the pandemic in 2020, plummeting by 3.8% or 293 points.

“This banking crisis came from America. And now people are watching how the whole thing could also cause problems in Europe,” said Robert Halver, head of capital markets at Germany’s Baader Bank.

“If a bank has had even the remotest problem in the past, if major investors say we don’t want to invest any more and don’t want to let new money flow into this bank, then of course a story is being told where many investors say we want to get out.”