Skip to main content

What went wrong with Credit Suisse?

After failures of some banks in the United States, troubles amplified for Credit Suisse.

Credit Suisse Group AG

Credit Suisse Group AG was a global investment bank headquartered in Zürich, Switzerland. It was bought by UBS Group AG on March 19, 2023. The reasons for its failures are –

Big scams and losses uncovered in Credit Suisse during recent years.
|

 
Falling share prices of Credit Suisse, withdrawal of funds by the customers and rising Credit Default Swaps for Credit Suisse.

 |

 |

| 

 
Silicon Valley Bank (SVB) collapsed on March 10, 2023 after a run on the bank.

 

 On March 14, 2023, Credit Suisse said in its 2022 annual report that the bank has identified "material weaknesses" in internal controls over financial reporting.

 

 The largest shareholder of Credit Suisse, Saudi National Bank, said in an interview that it wasn’t considering adding to its investment due to regulatory rules. Saudi National Bank owns 9.9% of Credit Suisse. Capital requirements often prevent banks from holding more than 10% of other banks.

 |

 |

 |

 
Sharp fall in share prices of Credit Suisse, large withdrawal of funds by the customers and rise in Credit Default Swaps for Credit Suisse.

 

 Swiss National Bank offered to lend 50 billion Swiss francs ($54 billion) to Credit Suisse.

 |

| 

 
To protect financial stability, Swiss National Bank arranged for takeover of Credit Suisse. UBS Group agreed to buy Credit Suisse for around 3 billion Swiss francs ($3.25 billion).

What is Credit Default Swap (CDS)?

‘Credit Default Swap (CDS)’ means a credit derivative contract in which one counterparty (protection seller) commits to pay to the other counterparty (protection buyer) in the case of a credit event (for eg. insolvency) with respect to a reference entity (against whose credit risk the contract is entered into). In return, the protection buyer makes periodic payments (premium) to the protection seller until the maturity of the contract or the credit event, whichever is earlier.

Will the failure of Credit Suisse affect India?

Credit Suisse is the 12th largest foreign bank in India. It owns assets worth ₹20,700 crore which is just 0.1% of the assets in the Indian banking system. It has a presence in the derivative markets and funds 60% of its assets from borrowings, of which 96% has a tenure of up to 2 months and around 70% of assets are in G-Secs (short-term). However, Credit Suisse failure is expected to have minimal impact on Indian banking sector.


References

IIFL Securities. (2022, October 08). Where Did Credit Suisse Go So Badly Wrong? Retrieved from https://www.indiainfoline.com/article/general-blog/where-did-credit-suisse-go-so-badly-wrong-122100800159_1.html

Mitchell, C. M. (2023, March 20). Why Is Credit Suisse in Trouble? The Banking Turmoil Explained. Retrieved from The Wall Street Journal: https://www.wsj.com/articles/why-is-credit-suisse-in-trouble-the-banking-turmoil-explained-6f8ddb5b

Sultana, N. (2023, March 20). India may not be immune to an SVB, Credit Suisse-induced recession. Retrieved from India Forbes: https://www.forbesindia.com/article/take-one-big-story-of-the-day/india-may-not-be-immune-to-an-svb-credit-suisseinduced-recession/83801/1


Follow at - Telegram   Instagram   LinkedIn   Twitter   Facebook

Labels:

Comments

Post a Comment

Popular Posts

Report of the Committee to develop a Framework for Responsible and Ethical Enablement of Artificial Intelligence (FREE-AI) in the Financial Sector

Reserve Bank of India (RBI) has released the report of the committee to develop a framework for responsible and ethical enablement of artificial intelligence (FREE-AI) in the financial sector. Committee to develop a Framework for Responsible and Ethical Enablement of Artificial Intelligence (FREE-AI) in the Financial Sector In the financial sector, Artificial Intelligence (AI) has the potential to unlock new forms of customer engagement, enable alternate approaches to credit assessment, risk monitoring, fraud detection, and offer new supervisory tools. At the same time, increased adoption of AI could lead to new risks like bias and lack of explainability, as well as amplifying existing challenges to data protection, cybersecurity, among others. To encourage the responsible and ethical adoption of AI in the financial sector, the committee to develop a Framework for Responsible and Ethical Enablement of Artificial Intelligence (FREE-AI) in the Financial Sector (Chairperson: Dr. Pushpak B...
Post a Comment
Read more

FX Global Code

Reserve Bank of India (RBI) has signed its renewed Statement of Commitment (SoC) to the FX Global Code.  What is FX Global Code? FX Global Code is a set of global principles of good practice in the foreign exchange market. The Code contains 55 principles that provide a common set of guidelines to promote the integrity and effective functioning of the wholesale foreign exchange market. The principles cover ethics, governance, execution, information sharing, risk management and compliance as well as confirmation and settlement. The establishment of the Code was facilitated by the Foreign Exchange Working Group (FXWG), which operated under the auspices of the BIS Markets Committee.  The Code was developed by a partnership between central banks and market participants from around the globe and was first published in 2017. The Code promotes a robust, fair, liquid, open, and appropriately transparent market in which a diverse set of market participants, supported by resilient infras...
Post a Comment
Read more

Lending against Gold and Silver collateral

Reserve Bank of India (RBI) has issued directions on lending against the collateral of gold and silver. To whom are the directions applicable? The directions are applicable to the following regulated entities (REs) – Commercial Banks (including Small Finance Banks, Local Area Banks and Regional Rural Banks, but excluding Payments Banks). Primary (Urban) Co-operative Banks (UCBs) & Rural Co-operative Banks (RCBs), i.e., State Co-operative Banks (StCBs) and Central Co-operative Banks (CCBs). Non-Banking Financial Companies (NBFCs), including Housing Finance Companies (HFCs). Which loans are covered under the directions? The directions shall apply to all loans offered by an RE for the purpose of consumption or income generation (including farm credit) where eligible gold or silver collateral is accepted as a collateral security. What is eligible collateral? Eligible collateral means the collateral of jewellery, ornaments or coins made of gold or silver. A lender shall not grant any ad...
Post a Comment
Read more

Investments in Non-SLR instruments by State Co-operative Banks (StCBs) and Central Co-operative Banks (CCBs)

Reserve Bank of India (RBI) has issued directions on investments in non-SLR instruments by State Co-operative Banks (StCBs) and Central Co-operative Banks (CCBs). What is the prudential limit for non-SLR investment by StCBs and CCBs? Total Non-SLR investments shall not exceed 10% of the total deposits of a bank as on March 31 of the preceding financial year. Which instruments are permitted for non-SLR investments by StCBs and CCBs? StCBs / CCBs may invest in the following instruments – "A" or equivalent and higher rated Commercial Papers (CPs), debentures and bonds. Units of Debt Mutual Funds and Money Market Mutual Funds. Shares of Market Infrastructure Companies (MICs), e.g. Clearing Corporation of India Ltd. (CCIL), National Payments Corporation of India (NPCI), Society for World-wide Inter-bank Financial Telecommunication (SWIFT). Share capital of Shared Service Entity (SSE) set up by National Bank for Agriculture and Rural Development (NABARD) for StCBs and CCBs. Which a...
Post a Comment
Read more

All about RBI Integrated Ombudsman Scheme, 2021

Filed a complaint against a bank / financial institution but haven’t received a reply for more 30 days? Or received a reply but not satisfied with the resolution offered by the bank / financial institution? Or the complaint was rejected by the bank / financial institution? You can approach RBI Ombudsman under the RBI Integrated Ombudsman Scheme, 2021. What is RBI Integrated Ombudsman Scheme (RBI-IOS), 2021? RBI-IOS was launched on November 12, 2021, by integrating the existing 3 Ombudsman schemes of RBI. RBI-IOS adopts ‘One Nation One Ombudsman’ approach by making the RBI Ombudsman mechanism jurisdiction neutral. It provides cost-free redress of customer complaints involving deficiency in services rendered by entities regulated by RBI. Which schemes are integrated in RBI-IOS? RBI-IOS integrates following existing schemes of RBI – Schemes Powers derived from Entities covered Banking Ombudsman Scheme, 2006 Section 35A of BR Act, 1949 S...
Post a Comment
Read more