Fri, Mar 17th 2023
Switzerland’s largest and most conservative political party, The Swiss People’s Party (SVP), says the government should not approve of a state guarantee for flailing Credit Suisse, as it goes against the country’s laws that were intended to prevent such an occurrence.
After the 2008 global recession, Switzerland introduced new laws which outline how struggling banks are broken up or closed – often referred to as Switzerland’s “too big to fail” regulations.
“The government shouldn’t give Credit Suisse a state guarantee,” SVP member Thomas Matter told Bloomberg News on Thursday. He added “The Swiss National Bank was responsible for providing liquidity to Credit Suisse, and the SNB has acted.”
On Tuesday, Credit Suisse released its annual report which revealed that the bank experienced a full-year net loss of CHF7.3 billion.
On Wednesday, major Credit Suisse shareholder Saudi National Bank announced it would “absolutely not” not lend a hand to the struggling bank. Saudi owns a 10% stake in the bank.
By Wednesday evening, Credit Suisse stocks were down 39% this year. The plummet caused U.S. and European bank stocks – already fragile from the Silicon Valley Bank implosion – to drop further.
By Thursday morning, the Swiss National Bank (SNB) disclosed that it would provide a CHF50 billion loan to Credit Suisse, as well as buying back CHF3 billion of Credit Suisse’s debt to shore up its liquidity.
By Thursday evening, the Federal Council held an unscheduled meeting to discuss the crisis but has declined to comment on it so far. If the government approves of a state guarantee for Credit Suisse, it will render the “too big to fail” laws useless, according to SVP’s Matter.
Meanwhile, a spokesman for the Switzerland’s second largest political party, the Social Democrats, said although they are not opposed to a state guarantee, it would have to be “well-compensated” for it to be approved, according to Bloomberg.
According to Matthew Lynn, a financial writer for The Wall Street Journal and The Telegraph, stranger things have happened.
“It sounds absurd, but both Ireland and Iceland found their government finances in meltdown during the last banking crash,” Lynn writes in a piece for The Telegraph.
Two problems could complicate the fate of Switzerland, according to Lynn. The first is that it is unknown how much capital Credit Suisse needs to get into the black, and the second problem is that other Swiss banks may need support, as well.
“Even worse, the Swiss National Bank over the last decade has also bought up vast quantities of American equities. It emerged as one of the largest holders of companies such as Apple, Amazon and Microsoft,” Lynn writes. According to some estimates, Switzerland’s U.S. portfolio was already down 16%. That decline, coupled with the tanking stock market, could spell disaster.
Switzerland is still one of the wealthiest nations with an annual GDP of about CHF800 billion. Moreover, its debt to GDP ratio is low by global standards at just 40%.
“Then again, that was also true of Iceland and Ireland going into the 2008 financial crash,” Lynn writes, adding that “Iceland’s debt was just 68% of GDP before the crisis, but ballooned to 138% as its banks collapsed.”
“It might seem unimaginable right now that Switzerland could be bankrupted by this crisis. But with the collapse of Silicon Valley Bank in the U.S. and now the rescue of Credit Suisse events are moving very fast… the unimaginable may become the inevitable very quickly,” Lynn concludes.
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