Credit Suisse too big to fail? 5 things you need to know about the crisis at Swiss bank

Credit Suisse, the Swiss investment bank whose shares fell 25% Wednesday triggering a wave of concern among investors, said Thursday that it will borrow up to $54 billion from Swiss National Bank, the central bank of Switzerland, to shore up liquidity. The announcement followed assurances from the Swiss authorities that Credit Suisse met "the capital and liquidity requirements imposed on systemically important banks," and it could access central bank liquidity if needed. 

Credit Suisse is the third major bank to land in trouble in the last two weeks after US-based Silicon Valley Bank and Signature Bank witnessed a collapse raising questions on depositors' safety.  While the United States government has decided against bailing out the banks, Credit Suisse has found government support. 

The promise of a lifeline helped Credit Suisse shares stage a recovery with share prices going up 35% from Wednesday's close at $2.48.  

But what was the cause of Credit Suisse's slump? Here are 5 things you need to know: 

1. The Market Tumble 

Credit Suisse Group AG shares fell to an all-time-low on March 15 after the bank acknowledged "material weaknesses" in its financial reporting processes that could lead to misstatements in its financial reports. Consequently, clients pulled billions from the bank. 

Among its material weaknesses are the lack of an effective risk management mechanism to locate misstatements in the bank's financial reports and a lack of effective oversight. 

2. A string of scandals 

Credit Suisse found its material weaknesses when it sought to rescue its reputation following a string of scandals. 

In 2019, Credit Suisse's then-Chief Operating Officer Pierre-Olivier Bouée was found to have hired private investigators to spy on senior employees eventually leading to them getting fired. While Bouée was removed after the scandal came to light, the private investigator 'took his own life', the bank said.  

In March 2021, Credit Suisse announced it was closing and liquidating $10 billion worth of funds. Investors reportedly lost $3 billion because of this. 

On March 24, 2021, the Archegos scandal came to light. In one fell swoop, the Archegos Capital Investment firm lost $20 billion, sending banks and investors into a tizzy. Credit Suisse, often described as a problem child of the European financial market, was one of the worst affected. 

In February 2022, a leak revealed that over 30,000 of Credit Suisse’s clients had amassed nearly $100 billion in wealth from “torture, drug trafficking, money laundering, corruption and other serious crimes”, Guardian reported. 

3. Changing leadership       

Credit Suisse has changed its top leadership several times since 2019 and especially since 2022. In January 2022, Credit Suisse group chairman Antonio Horta-Osario resigned for breaking quarantine rules amid the COVID-19 pandemic. Axel Lehmann took over. In July 2022, the group got a new CEO. 

4. Saudi support no more  

Amid the bank’s crisis, media reports say the Saudi National Bank has ruled out injecting more funds into Credit Suisse. Chairman of Saudi National Bank Ammar Al Khudairy said it would “absolutely not” be investing any more money in the beleaguered institution, not least for “regulatory and statutory reasons”. 

5. What happens now? 

With support from the Swiss National Bank, Credit Suisse became the first bank to receive a lifeline since the 2008 financial crisis. Although central banks have been agreeable to extend liquidy more generally to banks in times of market stress, including during the pandemic.

Credit Suisse has welcomed the support from the Swiss National Bank. 

Will the Credit Suisse crisis impact India? 

Credit Suisse is the 12th largest foreign bank in India and owns assets worth Rs 20,700 crore. However, even if the bank collapses, an eventuality not many economists anticipate, its impact on the Indian economy is likely to be limited. This is because the bank owns only 0.1% in the Indian banking system. 

While the global banking system faces a mounting crisis, India might be able to stand out, according to Uday Kotak, executive vice chairman of Kotak Mahindra Bank. “Current account deficit looks below 2.5% FY23, and going below 2% in FY24. Lower oil helps. If we walk our talk and navigate well, India can stand out in this turbulence,” the billionaire banker tweeted.