Restoring Confidence in Credit Suisse is Important for SwitzerlandSovereigns
Credit Suisse, Switzerland's second largest bank, announced that it will utilize up to CHF 50 billion from the Swiss National Bank (SNB) under a Covered Loan Facility, as well as a short-term liquidity facility. The bank aims to carry out liability exchange management measures, which could provide the bank with more time to continue with its restructuring plans. It is unclear at this point whether the Swiss government will participate in the rescue package; authorities have confirmed that the bank is meeting the applicable capital requirements for systemically important banks.
Switzerland’s highly open economy and historical status as a financial center are sources of growth and prosperity for the Swiss economy. Given the large size of the banking sector, at nearly 520% of GDP, restoring confidence is important. In 2020, financial activity contributed around 10% of GDP and the sector employed approximately 209,000 people, equivalent to 5.2% of the total workforce. The Swiss Federal Government’s expert group (SECO), in its last economic forecast, projected GDP growth of 1.1% this year, and of 1.5% next year (GDP adjusted for sporting events). We take the view that increased financial volatility and uncertainty over the success of the bank's restructuring plan could cloud the economic outlook for Switzerland.
“This liquidity support for Credit Suisse is not expected to have any material impact on public finances,” said Spyridoula Tzima, Vice President of the Sovereign Group at DBRS Morningstar. “At the same time, we will monitor the situation at Credit Suisse for any sizeable contingent liability risks to the Swiss fiscal position or any material downside risks to growth prospects.”