The Swiss Government Intervenes to Save Credit Suisse from Investor Confidence Crisis

03/27/2023 02:39 • Tech Trends • 90 views

On March 27th, Swiss Finance Minister Karin Keller Sutter stated that the Swiss government was forced to intervene to save Credit Suisse because Credit Suisse might not survive Monday in the event of an investor confidence crisis. “Without a solution, the payment transactions between Switzerland and Credit Suisse would be seriously disrupted and even collapse,” he said.

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As per the statement from Swiss Finance Minister Karin Keller Sutter on March 27th, the Swiss government had to intervene to save Credit Suisse from an investor confidence crisis. The Swiss banking giant faced a huge setback after the Greensill Capital bankruptcy scandal that resulted in investor concerns over their risk management process. Let’s delve deeper into the reasons behind the Credit Suisse crisis and the Swiss government’s intervention.

The Background of Credit Suisse Crisis

Credit Suisse Group AG is a globally reputable Swiss multinational investment bank and financial services company headquartered in Zurich. As per the recent crisis that led to government intervention, it all started in 2017 when Credit Suisse lent more than $1 billion to the Greensill Capital, a supply chain finance company.
Greensill Capital had leveraged Credit Suisse funds for working capital purposes, which is a common practice in the banking industry. But the scenario turned dire when Greensill hit financial turbulence in March 2021 and filed for bankruptcy. Credit Suisse actively marketed Greensill funds to its clients, mostly wealthy individuals, and institutions. The bankruptcy of Greensill raised investor concerns about the risk management process of Credit Suisse.

Investor Concerns Over Credit Suisse’s Risk Management

After the Greensill bankruptcy scandal, the investors started pulling out their funds from Credit Suisse’s shadow banking entity. Investors had invested billions of dollars in Credit Suisse hedge funds that had exposure to the Greensill assets. Many investors became concerned the redemption of the assets might fall far below the value of the funds or might take much longer than Credit Suisse had projected. Due to such investor fears, Credit Suisse had to suspend the funds on March 1, 2021.
The voluntary freeze was an unprecedented scenario, and Credit Suisse became the first major player to get hit by the Greensill fallout. The bank then started focusing on mitigating the impending damage on clients and itself.

The Government Intervention and its Impacts

By March 25, 2021, Credit Suisse’s stock had dropped by 10%, and the bank was beginning to face a substantial investor confidence crisis. On March 26th, the Swiss National Bank (SNB) was in discussions with Credit Suisse over the Greensill Capital funds issue. Finally, on March 27th, Swiss Finance Minister Karin Keller Sutter made the announcement that the government had to intervene to save Credit Suisse from further damage due to investor flight.
The Swiss National Bank has provided Credit Suisse a lifeline by providing liquidity facilities of almost $15.8 billion. Credit Suisse had to agree on “remedial measures” to strengthen its financial position further.
The government intervention has helped Credit Suisse to survive and stabilize the situation. The facility given by the Swiss National Bank acted as a significant buffer and will help Credit Suisse in providing liquidity facilities to its customers without any disruptions.

Conclusion

The Credit Suisse crisis is a wake-up call for investors and the banking industry to revisit their risk management process. The Greensill scandal has adversely affected the bank’s reputation and put its future in jeopardy. The Swiss government’s timely intervention helped in stabilizing the situation and saving the bank from a possible collapse. This incident portrays the relevance of the government’s role in regulating and intervening to prevent any systemic risk in the financial industry.

FAQs

Q. When did the Credit Suisse crisis begin?
A. The Credit Suisse crisis began in March 2021 after the Greensill Capital bankruptcy scandal.
Q. What resulted in investor concerns over Credit Suisse’s risk management process?
A. The Greensill Capital bankruptcy and Credit Suisse’s marketing of Greensill funds to its clients raised investor concerns over Credit Suisse’s risk management.
Q. What action did the Swiss government take to intervene in the Credit Suisse crisis?
A. The Swiss government provided liquidity facilities of almost $15.8 billion to Credit Suisse, which helped the bank stabilize its situation.

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