“The Federal Council welcomes the acquisition of UBS Credit Suisse. This acquisition is of great importance not only for Switzerland, but also for the international financial center in terms of restoring confidence,” said Swiss President Alain Berset. According to him, Credit Suisse had a good reputation, but customers and investors lost confidence in the bank. The decision of the Swiss authorities following the “loss of confidence” was to provide the two banks with a guarantee of liquidity: 108 billion dollars in loans in addition to the 54 billion dollars issued last week. The same purchase amount was $3.24 billion.
“The actions of the Swiss authorities, apparently, will give the markets some respite at this stage, weaken the blow to the crisis of confidence in the financial sector. However, to say that a banking crisis can be avoided, in my opinion, It is still premature, and some questions also relate to the way in which the operation was organized and its terms, ”underlines Igor Dodonov, analyst at FG Finam.
Loss of confidence in financial institution regulators usually spills billions of dollars
According to him, the negotiations on such a not insignificant agreement took place in record time. “The amount of the transaction was at the time significantly below the market value of Credit Suisse and the authorities cleared it without shareholder approval. The Swiss Central Bank will provide support to the merging banks to the tune of 160 billion francs, while Swiss bonds of 16 billion francs will be canceled to guarantee participation in the rescue of a bank of private investors. That is to say, the price of rescuing a troubled bank turned out to be very high, but the Swiss authorities apparently decided that it was worth it. I think we can agree with them, because the collapse of such an important financial institution would inevitably lead to a financial crisis,” Dodonov points out.
Credit Suisse’s quick rescue signals serious problems in the European banking system, said Mikhail Vasiliev, chief analyst at Sovcombank. “Credit Suisse employs approximately 48,000 people, and after the merger with UBS, it is likely that many of the bank’s duplicate branches will be closed and employees laid off. In addition, the merger of the two Swiss banking giants will reduce competition in the country,” he said.
The Swiss Central Bank opted for such a merger, despite the objections of shareholders and creditors, probably due to the fact that there were no longer any good options, admits the analyst. According to him, a further worsening of the situation in the European, American and global financial systems is to be expected, as the probability of a financial crisis is still high. “The modern financial system relies on the trust of market participants. Today, confidence in the global financial system (after the bankruptcy of the American bank SVB and the rapid and unexpected rescue of Credit Suisse) has fallen and many players of the system have problems”, underlines Vasiliev.
It is no coincidence that on Monday morning the US Federal Reserve and five other major central banks announced measures to improve global access to dollar liquidity amid the banking crisis. The Fed will offer dollars at daily auctions to address global dollar liquidity issues. Daily swap lines between the Fed and the ECB, Bank of England, Swiss Central Bank, Bank of Canada and Bank of Japan will remain in effect at least until the end of April. “Central banks in Europe and the United States have missed the moment to fight inflation and are now rapidly raising interest rates. However, systemic failures have started to appear in the financial system, which threatens a crisis. financial system and a global recession.In the 15 years since the 2008 crisis, the western financial system has become accustomed to living with However, in order to overcome the consequences of the covid pandemic, western central banks have largely caused a jump in the global inflation, and now the Fed and the ECB no longer have good choices to beat inflation and at the same time preserve the financial system,” notes Vasilyev.
The current tightening of financial conditions by the ECB and the Fed could worsen the banking crisis. “In a risky scenario, in the event of increased instability in the financial system, the ECB could suspend the monetary policy tightening cycle and even start to ease monetary policy. However, this creates the risk of a new cycle of monetary policy tightening. inflation in the euro zone. . We do not see a direct threat to Russian banks due to the banking crisis in the West”, underlines the expert.
