Questions and answers about the Credit Suisse crisis

Zurich / Bern

It is a massive earthquake in the European banking landscape. A smaller rival’s takeover of troubled Credit Suisse would calm jittery financial markets. “the Federal Council “I am convinced that the takeover is the best solution to restore confidence,” Swiss President Alain Berset said Sunday evening.

Why did Credit Suisse fail?

The venerable bank, born in 1856, hobbled itself to years of mismanagement and risky business. There were Bulgarians Mafia, which, according to the prosecutor, carried out money laundering operations through CS accounts without disturbance from 2004 to 2007. There was a stormy work of a British subsidiary of CS in Mozambique in 2013, millions of loans to state-owned companies disappeared. Then, between 2016 and 2019, there was spying on company executives, one of whom was pursued in gangster fashion through the streets of Zurich. The bank was recently involved in projects of Archegos hedge fund and Greensill funds and lost millions when it collapsed. Confidence in CS had already waned, and the recent collapse of the Silicon Valley bank and fear of a possible global banking crisis sent it into a downward spiral.

Why did the administration fail?

The Tages-Anzeiger mentality identifies snagging the bank’s carpeted floors as one of the reasons. The newspaper calculated from annual reports that the bank had incurred a cumulative loss of 3.2 billion Swiss francs since 2013, but that senior managers received 32 billion Swiss francs (32.2 billion euros) in bonuses in the same period.

Shouldn’t the authorities have intervened earlier?

For the banking industry service Inside Paradeplatz, the Swiss National Bank, the financial regulator and the government have failed. Editor Lukas Hässig wrote on Sunday that they should have been asking critical questions at the bank since autumn at the latest, when doubts about Credit Suisse’s future increased. Then things can turn around. This did not happen. Hässig wrote: “In recent years, the Panic Orchestra has taken command of Helvetia Bridge”. “They watched for months without doing anything as the CS Titanic raced toward the iceberg at full speed.” Helvetia is the Latin name for Switzerland.

What is the importance of Credit Suisse?

She belonged – like them Deutsche Bank – Among the 30 most important banks in the world. This rating comes from the International Financial Stability Board (FSB), which oversees the international financial system. These banks are linked by international networks, which is why their failure may sweep over others – they are “too big to fail”. Subject to special security requirements.

Together with CS, UBS will now become a huge bank, larger than Deutsche Bank. Total assets will be over CHF 1.5 trillion (data up to the end of 2022). Deutsche Bank has 1.3 trillion euros.

When was the last global financial crisis?

It began in the summer of 2007. In a speculatively bloated US housing market, interest rates on interbank financial loans shot up when it became clear that the mortgages of less solvent customers would default en masse. Banks no longer trust each other. As a result, on September 15, 2008, the large American bank Lehman Brothers collapsed. The ensuing crisis spread throughout the world, and many banks had to be backed up with billions of dollars in loans.

There are no such problems as there were then, many banks got into trouble because junk mortgages were suddenly worthless. Banks are currently facing a problem with the shift in interest rates in the USA and the Eurozone. For example, there have been losses in the prices of government bonds in the markets. This becomes a particular problem when banks sell the paper before the end of the maturity period. The Silicon Valley bank was forced to do this because investors threatened to withdraw their money if they did not get higher interest rates. The resulting losses broke her neck.

Is the world better armed than it was in 2016?

In order to make the industry more resistant to crises, regulations have been tightened. Banks must now have much more capital with which to buffer losses in a crisis. Additionally, since 2016 in Europe, if an enterprise ran into trouble, the owners and creditors were required to pay first. Deposits from savers and money from a bank-financed crisis fund (the Only Solution Fund) are used only as a last resort. This included about 66 billion euros.

How is bank savings secured?

In Germany, customers’ savings deposits of up to €100,000 per person are legally protected in the event of bank failure. In addition, almost all credit organizations voluntarily insure clients’ funds in excess of the legal limit. According to the Federal Association of German Banks, private banks generally protect a minimum of €750,000 in deposits per bank. In many institutes, the security limits are higher. It is similar to savings banks and cooperative banks.

_{note: This report is part of an automated service provided by the German Press Agency (dpa), which operates under strict journalistic rules. It is not edited or vetted by AZ Online Editors. Questions and hints please feedback@az-muenchen.de}