The Credit Suisse lifeline and its impact

What’s in today’s article?

• Why in News?
• What is Credit Suisse?
• What is the Link between India and Credit Suisse?
• News Summary Regarding Troubles at Credit Suisse

Why in News?

• The Swiss central bank stepped in with a $54 billion lifeline for Credit Suisse after a continuing slide in the lender’s shares triggered growing concerns about a developing bank deposit crisis.

What is Credit Suisse?

• It is a global investment bank and financial services firm founded (1856) and based in (Zurich) Switzerland.
• It maintains offices in all major financial centers around the world and is one of the nine global “bulge bracket” banks providing services in investment banking, private banking, asset management, and shared services.
  • Bulge bracket banks (no definitive list) are the world’s largest multinational investment banks, serving mostly large corporations, institutional investors and governments.
• It is known for strict bank-client confidentiality and banking secrecy and recognised as a global systemically important bank (G-SIB) by the Financial Stability Board (FSB).
• Credit Suisse has had a troubled history, having braced multiple scandals in recent years over different issues, including money laundering charges.
• It reported having lost money in the last two years and had issued a warning of staying in the red at least till 2024, triggered concerns about the health of Europe’s banking sector and a contagion effect.
• The new crisis (SVB failure) could mean a longer road towards profitability or even solvency, for the embattled bank.

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What is the Link between India and Credit Suisse?

• Established in India in 1997, Credit Suisse has offices in Mumbai, Pune and Gurgaon, with vendor offices in Bangalore, Hyderabad and Kolkata.
• India represents the second-largest footprint for Credit Suisse outside of Switzerland and India is an important recruitment centre for the bank globally.
• A deepening banking crisis in the US or the EU could mean fresh troubles for lenders in other geographies, including India.
• Therefore, a lifeline to Credit Suisse is good news for India as there could be a cascading impact of global regulatory action (pause in the ratings hikes) that would have a bearing on the RBI’s stance on market rates and outlook for the markets.

News Summary Regarding Troubles at Credit Suisse:

Image Caption: The Credit Suisse lifeline and its impact

• The shares of Credit Suisse plunged to a fresh all-time low after a top investor in the embattled lender said it would not be in a position to provide more cash due to regulatory red lines.
• The Swiss regulators said that Credit Suisse currently meets capital and liquidity requirements and that the Swiss National Bank will provide additional liquidity, if needed.
• This came at a time when there was a concern of a spiralling banking sector crisis.
• The lifeline is extremely significant as Credit Suisse would be the first major global bank to be given such a credit line since the 2008 financial crisis.

Q1) What are Global systemically important banks (G-SIBs)?

A G-SIB is a bank whose systemic risk profile is deemed to be of such importance that the bank’s failure would trigger a wider financial crisis and threaten the global economy. The Basel Committee has developed a formula for determining which banks are G-Sibs, deploying criteria including size, interconnectedness and complexity.

Q2) What is investment banking?

Investment banking pertains to certain activities of a financial services company or a corporate division that consist in advisory-based financial transactions on behalf of individuals, corporations, and governments.

Source: The Credit Suisse lifeline and its impact | TH | ET