Post: Why did the Credit Suisse crisis start? What is the difference between this and the Bank of Silicon Valley?

Last week’s turmoil in US banks crossed the Atlantic this week, when Credit Suisse announced it would borrow $54 billion from the Swiss central bank to bolster its liquidity.

Although Credit Suisse, a bank founded in 1856, has had recent crises, they have not been serious. The announcement of the bank’s loan did not come until the violent financial storm lasted just 24 hours, causing the bank’s stock price to plummet.

Credit Suisse’s business is primarily based on managing funds and creating investment products for its wealthy clients around the world. However, the bank, which is struggling to recover from a series of high-profile and costly scandals, posted a net loss of 7.4 billion euros in 2022.

This is the bank’s biggest loss since the 2008 financial crisis, when Switzerland’s second-largest banking institution suffered a loss of more than 8 billion francs.

What is the cause of the banking crisis?

After the collapse of a Silicon Valley bank in the US last week, investors feared that contagion could hit banks around the world. This led to the sale of bank shares in every country in the world, including Credit Suisse.

However, the bank’s involvement intensified when the National Bank of Saudi Arabia announced last Wednesday that it would not consider increasing its investment in the Swiss bank due to regulatory concerns. The National Bank of Saudi Arabia owns approximately 9.9% of the shares of Credit Suisse.

How did investors react?

Saudi Arabia’s announcement came at the worst possible time as its investors were mainly concerned about the spread of contagion from the US to Europe and the possibility of a vulnerability in the global banking system.

And when the National Bank of Saudi Arabia announced what it had done, the concerns of investors in Credit Suisse increased, raising the ominous hypothesis that the bank could be forced to turn to shareholders and investors to provide liquidity. .

So investors immediately tried to hedge, and at the same time, shares in the Swiss lender plummeted. It lost more than 30 percent of its value on Wednesday.Which is the biggest one-day drop in the bank’s history.

On the other hand, the bank’s other intermediaries were closely monitoring their situation and some of them stopped their commercial operations, reported the US newspaper Wall Street Journal.

Is Credit Suisse different from Silicon Valley Bank?

A Swiss bank manages the capital and businesses of the rich who have millions and sometimes billions and want to invest in them. In addition to the rich, there are several sovereign wealth funds that are related to it.

Credit Suisse is Switzerland’s second-largest bank by assets and is considered a large bank in the global system, unlike SVB, which is considered a local bank and primarily serves start-ups.

And while Credit Suisse approved a package of measures to protect the institution from high interest rates, Silicon Valley Bank said it had no financial reserves to help it face the crisis that caused interest rate hikes.

However, despite the fundamental difference between the two banks, Credit Suisse shares fell around 7% in Switzerland on Friday, meaning the shares have lost a fifth of their value this week.

government actions

Following the unprecedented sharp drop in the bank’s share value, the European Central Bank contacted the banks it supervises and cooperates with Credit Suisse to determine the extent of risks to which they may be exposed.

French Prime Minister Elisabeth Borne urged Swiss authorities to step in and “solve” the problem last Wednesday. Switzerland’s response came quickly on Thursday, when Credit Suisse said it had borrowed about $54 billion from the Swiss central bank to boost its liquidity. Since Wednesday, European authorities have made several announcements to reassure investors.

it’s Friday French central bank governor Francois Villeroy de Gaulle said French and European banks are “very strong”. It deals with administrative and organizational differences between European and American banks.

European stocks rose again on Thursday after the European Central Bank sent a message of confidence to the banking sector and the bank raised its main interest rate by half a point, confirming its willingness to intervene if necessary to “endure”. Financial Stability” in the Eurozone.

Source: EuroNews

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