European regulators have promised to bail out Credit Suisse from its ongoing financial woes—for the sake of avoiding global chaos.
- Following Wednesday’s 30% drop in valuation, the global financial system was shaken by the possibility of one of the world’s largest lenders destabilizing the global economy.
- The European Central Bank says it is willing to do whatever is necessary to avoid another major financial crisis.
- Swiss National Bank (SNB) and Swiss Financial Market Supervisory Authority (FINMA) released a joint statement on Wednesday that “if necessary, the SNB will provide Credit Suisse with liquidity.”
- Credit Suisse subsequently announced its intention to borrow $54 billion to meet its ongoing crises, and its stock valuation briefly increased 32%, Reuters reports.
Why It’s News
The global banking system is facing a potential crisis. The Swiss government has taken action that it deems necessary to avoid the chaos of another global financial crisis, similar to the disastrous 2008 crisis that launched “the great recession.” This leaves the government responsible for further issues should Credit Suisse collapse, Reuters notes..
It also gives significant responsibility to Credit Suisse to reorganize further than it already has, continuing internal years-long efforts to restructure after widespread speculation of insolvency and mismanagement.
As we previously reported, the global financial system was previously rocked on Friday, March 10, by the collapse of Silicon Valley Bank, which required the Biden administration to step in and bail out depositors. The effects of both crashes have weakened the stock market, but Wednesday’s Credit Suisse stress caused major indexes to drop over 1%. Credit Suisse has global connections, and its collapse would mark one of the largest bank failures in world history.
“This has been a slow-motion train wreck for a decade now,” Great Hill Capital Chair Thomas Hayes tells Reuters. “The Swiss authorities will probably want to keep it on life support because of national symbolism. They’re going to prop this thing up and walk it around like it’s alive, but it will basically be a zombie bank that’s state controlled.”