The Swiss political elite prepared for the move, which rocked the world financial market and hit the front pages of the most popular media, even before the hastily convened press conference, writes Reuters.
While the Swiss Central Bank and financial regulators told the public that Credit Suisse was safe, the race to save the country’s second-largest bank was going on behind closed doors. The chain of events led to the takeover of Credit Suisse, which was backed by the state with a 280 billion dollars loan. Favoring bank shareholders instead of protecting bond investors turned the global financial market upside down.
The events in Switzerland contradict all the lessons that should have been learned after the 2008 crisis. A single bank bailout results in a concentration of risks in one giant of the banking industry, UBS Group AG. The Swiss National Bank declined to comment, while the Swiss Finance Ministry did not respond to a call for comment.
Credit Suisse has been struggling for years with scandals and losses, and trying to cope with the crisis of confidence.
The closure of the bank was a matter of days. Soon after the US government announced on the 12th of March that it would help guarantee the safety of deposits at two mid-sized lenders, attention turned to Credit Suisse and its ability to maintain depositor confidence. In the last three months of last year, 110 billion dollars had already been withdrawn from the Zurich bank, and the bank was trying to prevent these losses.
Repeated promises from Credit Suisse’s biggest investor that the bank could be trusted were of little consequence, and a significant outflow of deposits followed. Tensions began to rise in the financial centers of Zurich and Bern. However, even as discussions about the rescue of Credit Suisse were already underway, the Swiss National Bank and the country’s financial regulators indicated that the problems of individual US banks did not pose a direct risk to the Swiss financial market. The bank itself also spoke about stability. On the 16th of March, Credit Suisse told Reuters that, despite the international banking crisis, liquidity indicators remained unchanged between the 8th and 14th of March.
Communication with the European Central Bank was poor during this time. Credit Suisse’s branches in Luxembourg, Spain, and Germany were small. European financial regulators were worried that Switzerland could set all the losses on the shoulders of bondholders – a radical step that was taken anyway.
The global financial market is still reeling after such a turn. One person involved told Reuters that with the bank of billionaires, deposits can be gone very rapidly and all is over in three days.
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