Credit Suisse fall highlights call for improved financial oversight
2 min read 20 Mar 2023, 06:18 PM ISTCredit Suisse's ability to weather the 2008 financial crisis without government support was a testament to the bank's risk management and financial stability.
PremiumThe acquisition of the bank by UBS in a Swiss government-backed deal indicates that regulators were concerned about the stability of the banking system and acted quickly to prevent further damage.
Credit Suisse, founded in 1856, has been a significant player in the Swiss financial sector for more than a century. Despite facing challenges during the 2008 financial crisis, the bank managed to avoid a government bailout, unlike its rival UBS.
Credit Suisse's ability to weather the 2008 financial crisis without government support was a testament to the bank's risk management and financial stability. However, the recent challenges faced by the bank, including restrictions on trades and the need for emergency funding, underscore the continued volatility and uncertainty in the financial markets.
In March 2023, Credit Suisse's 2022 annual report revealed that there are "material weaknesses" in its internal controls over financial reporting. Additionally, while customer outflows had stabilised, they had not yet reversed, indicating that the bank is still facing challenges in rebuilding investor confidence.
The bank's troubles have been further compounded by the news that its largest shareholder, the Saudi National Bank, is unable to provide more support due to regulatory constraints.
As a result, Credit Suisse's shares plummeted by as much as 30%, highlighting the continued uncertainty and volatility in the financial markets.
In a move to shore up its liquidity, Credit Suisse has secured a $54 billion lifeline from the Swiss central bank, making it the first major global bank to receive emergency funding since the 2008 financial crisis. This underscores the continued challenges faced by financial institutions and the need for effective risk management.
The Swiss authorities have provided assurances that Credit Suisse has met the capital and liquidity requirements imposed on systemically important banks, indicating that regulators are taking proactive measures to prevent another crisis.
UBS is buying troubled rival Credit Suisse for almost $3.25 billion. The deal was “one of great breadth for the stability of international finance," said Swiss President Alain Berset as he announced it Sunday night.
Overall, the situation underscores the importance of vigilant regulation and oversight in maintaining the stability of the financial system.
“The transaction will result in the creation of a global wealth manager with around $5 trillion in total invested assets. The move also fits well with UBS’ business growth strategies in Asia, the Americas and Europe. According to the terms of the agreement, subsequent to the closing of the merger transaction, UBS will be the surviving entity," said Aurojyoti Bose, Lead Analyst at GlobalData, a leading data and analytics company.
As per a report by BBC, Swiss President Alain Berset has warned of the severe consequences that an uncontrolled collapse of Credit Suisse, “would lead to incalculable consequences for the country and the international financial system".
Many Swiss citizens are now questioning whether regulators and other oversight bodies failed to prevent the bank's decline.
Central banks around the world have emphasized the safety of the global banking system, but there are concerns that other lenders could face challenges as a result of recent increases in interest rates. These rate increases have led some banks to suffer significant losses, which could have broader implications for the financial industry.
In response, the Bank of England, Bank of Japan, Bank of Canada, the European Central Bank, US Federal Reserve, and Swiss National Bank have taken coordinated action to keep credit flowing and support financial stability.
