The ‘whatever it takes’ attitude from central banks and banking powerhouses could be crucial to arrest fast-moving disruption to global banking this week, says a Bayes Business School banking expert.
Following the collapse of Silicon Valley Bank (SVB) last week, the global banking sector has seen a chain effect that has reached across the North Atlantic Ocean. Swiss lender Credit Suisse (CS) saw shares fall by as much as 30 per cent on Wednesday, with other European banks impacted – including Deutsche Bank in Germany, ING Groep in the Netherlands and Banco Bilbao Vizcaya Argentaria in Spain.
Credit Suisse’s value plummeted after its largest shareholder, the Saudi National Bank, refused to commit to additional support through equity purchases. The Swiss National Bank (SNB) and financial regulator FINMA has since said the SNB would provide liquidity "if necessary", with CS’s Chief Executive saying in a statement that "we are resolved to move forward rapidly to deliver a simpler and more focused bank built around client needs".
The move has stabilised CS’s shares, with Cristine Lagarde, President of the European Central Bank allaying fears that Europe’s banks were under similar threat now as they were during the Global Financial Crisis of 2008.
Barbara Casu is a Professor of Banking and Finance and Director of the Centre for Banking Research at Bayes. She says the speed at which CS moved is significant but is concerned at the situation.
“Things are moving really quickly,” said Professor Casu. “Credit Suisse has announced a public tender offers for debt securities, a move that will remind markets of Deutsche Bank. It worked in DB’s case, so it might be a turning point in this crisis, at least for Credit Suisse. Having said that, the situation is serious."
Professor Casu highlighted that Credit Suisse is a Globally Systemically Important Bank (G-SIB) which serves a much wider range of clients and markets than SVB. CS had more than $580 billion of assets at the end of 2022, more than double the assets of SVB.
“Credit Suisse is not Silicon Valley Bank, it is a large, diversified bank. It has been troubled in recent months, but the problems are more varied.
“The Swiss Central Bank statement was a good statement; very nuanced and carefully worded, showing support for the bank and a willingness to do ‘whatever it takes’. The offer of a liquidity backstop to Credit Suisse also aimed at minimising the risk of contagion to other institutions”.