“CS initially saves itself over the weekend”

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Credit Suisse (CS) has received promises of assistance from the Swiss National Bank (SNB). CS will borrow approximately CHF 50 billion from SNB.

Former CS boss Oskar Grübel (70) sees this as a perfectly normal process to stabilize the financial centre. But the question is whether this solves CS’ problems.

“Emergency symptoms clear”

“Only the coming days will show if the loss of confidence in the sick big bank can really be stopped, thanks to the 50 billion franc SNB loan,” said Teodoro Cocca, professor of banking at the University of Linz (A) in an interview. with the AWP agency.

If a bank needed such a line of credit, it had two meanings: Firstly, CS could no longer obtain sufficient liquidity from the market as other banks no longer trusted it. Second, the bank also needs liquidity to cope with the possible significant outflow of customer deposits. “These are all clear signs of an emergency,” Cocca said.

Cocca continues that with the liquidity injection from SNB, CS now “saves itself for the weekend” and should last “four to five weeks”. It is not yet clear whether the measure will be sufficient to regain the trust of customers and shareholders, thereby preventing the money outflow that has plagued CS.

Deposit insurance may not be enough

According to Sergio Rossi, professor of economics at the University of Freiburg (D), the split or sale of CS is not off the table, even if there is an SNB loan. However, Credit Suisse in its current form is of no interest to a buyer: “Unless you give up the lazy part of the bank and keep the profitable part,” Rossi says. In investment banking, which CS has always adhered to in the past, it sees the “lazy” above all else.

Also, the professor finds a problem with his deposit insurance. “The amount of CHF 100,000 per customer and bank for deposit protection is only a theoretical value,” says Rossi.

The reason: Deposit protection is a financial center issue, not government insurance. In the event of a bank failure, assets under CHF 100,000 are paid in priority. If the bank is no longer liquid enough, other financial institutions step in.

According to Rossi, this emergency fund currently covers about eight billion francs. According to the economist, CS’ bankruptcy could exceed this amount. “The problem is even greater if the failure of CS plunges other banks into the abyss,” Rossi says. However, the Swiss financial center is still a long way from this scenario. (rae)

Source :Blick