Updated: Jun 8
- Brief overview
- Impact on Global Financial System
- Why is it failing?
- Issues with Credit Suisse
- Revival plans
Credit Suisse is rich in history as it has been in operation for over 167 years. The second largest bank in Switzerland. It was established to finance the expansion of Swiss railroads. The bank's core business was in managing money and creating investment products for elite clients across the globe. As an attempt to restore its brand reputation, Credit Suisse planned to spin off its investment banking service to distance itself from a long stretch of controversies and quarterly losses.
The issue is alarming because Credit Suisse is globally interconnected. The turmoil surrounding US regional banks is not as bad as compared to Credit Suisse because of the profound impact it has on the Global Financial System.
Categorized as a globally systematically important bank along with other gargantuan like JP Morgan, Chase, Bank of America and Bank of China.
Based on the statement provided by the bank, it said that it would borrow up to 50 Billion Swiss Franc from Switzerland National Bank. Debt from the Swiss national bank was Credit Suisse's lifeline as its stock price plummeted by 30%.
Why is Credit Suisse struggling right now?
Central banks across the globe have been raising interest rates to slow down inflation and cool down the global economy. This process has left some banks vulnerable. However, the main reason behind this turbulence is Saudi's National Bank.
A Bank's main source of income is spread. Which is the difference between interest charged on loans offered and interest paid on deposits. As Central banks were hiking interest rates, it made the cost of obtaining loans higher. It directly impacted banks' income as lesser customers were obtaining loans due to the high-interest rate.
What caused the 30% Stock Price Crash
Saudi National Bank is Credit Suisse's biggest backer. The decision to not put up more capital caused massive panic among investors and depositors. They were very concerned with the bank's financial situation.
Issues with Credit Suisse
Timeline of Credit Suisse Disasters
Credit Suisse is regarded as one of Europe's weakest links among banks. It has been struggling for years. Over the course of years, the company had been hit by a series of mishaps and regulatory issues that cost them billions. It even led to the overhauls of top management.
List of Offences
CREDIT SUISSE'S PLANS FOR REVIVAL
Swiss National Bank's lifeline acts only as a stopgap until confidence in Credit Suisse is restored. JP Morgan's analyst disclosed that the lifeline is insufficient given the ongoing market confidence issues. They plan to carve out Investment banking into an independent US-based business and focus on Switzerland as well as supervising money for wealthy clients.
Swiss Regulators are steering its arch-rival, UBS group into acquiring the bank. FINMA is pushing for this move to prevent further financial meltdown.
Meyersohn, N. (2023) Credit Suisse: Why it's struggling and why that's a big deal | CNN business, CNN. Cable News Network. Available at: https://edition.cnn.com/2023/03/16/investing/why-credit-suisse-is-struggling/index.html#:~:text=Credit%20Suisse%2C%20the%20167%2Dyear,Switzerland%2C%20is%20in%20deep%20trouble. (Accessed: March 24, 2023).
Why is credit suisse in trouble? the banking turmoil explained (2023) The Wall Street Journal. Dow Jones & Company. Available at: https://www.wsj.com/articles/why-is-credit-suisse-in-trouble-the-banking-turmoil-explained-6f8ddb5b (Accessed: March 24, 2023).