(News Bulletin 247) – The SNB has stepped up to Credit Suisse’s bedside by granting it a loan facility of up to 50 billion Swiss francs. Before her, the Federal Reserve had taken emergency measures to prevent the bankruptcy of Silicon Valley Bank from spreading.

As the financial system shakes, central banks pull out the fire hose. Since last week, bank weaknesses have come back to the fore, raising fears of a risk of contagion and recalling the bad memories of the bankruptcy of Lehman Brothers in 2008.

If the system is more robust than at the time, the major central banks have nevertheless acted to try to put an end to the panic.

While Credit Suisse collapsed on the stock market on Wednesday and saw the premiums on its CDS, a hedging instrument to guard against the risk of default, reach distressing levels, the Swiss National Bank (SNB) came out of its silence, Wednesday evening.

In a press release published with the federal financial market supervisory authority (Finma), she assured that Credit Suisse met the liquidity and solvency requirements and indicated that it was ready to provide it with liquidity. Statements deemed “very strong” by Charles-Henry Monchau, director of investments at Banque Syz.

Jumping on the occasion, Credit Suisse then announced that it was activating an option allowing it to borrow up to 50 billion Swiss francs from the SNB. This allows its action to regain more than 20% on the Zurich Stock Exchange, at the end of the morning.

The Fed opens a new window

This intervention follows that of the US Federal Reserve (Fed), itself following the bankruptcy of Silicon Valley Bank (SVB), which led to significant fears about US regional institutions.

The US central bank announced on Sunday the introduction of a loan facility to ensure that more fragile banks can have liquidity to meet withdrawal requests from their customers. What Deutsche Bank considers a form of “quantitative easing” (quantitative easing).

On this new loan facility, the assets provided as collateral for the financing will not have to be valued at the market price but at their nominal value, a value fixed for the debt securities when they are issued. In other words, independently of their real value at a time “t” on the market.

This will allow institutions to limit the value discount on the assets pledged to obtain this financing. And so to, to put it simply, to borrow more.

Low but existing risks

Eyes will now be on the European Central Bank (ECB) and its president, Christine Lagarde, who will speak at 2:45 p.m. on Thursday. No establishment in the euro zone has so far publicly announced a liquidity problem.

On Twitter, Pictet economist Frederik Ducrozet explained that the European institution has several tools and support mechanisms to address banks’ potential liquidity concerns. In particular, he mentioned a relaxation of the rules on guarantees requested from banks. “And the ECB might think twice before ending long-term refinancing operations [TLTRO et LTRO, NDLR]”, he added.

Do these interventions by central banks carry risks for the citizens of their countries?

“There is a risk for American and Swiss taxpayers but it is extremely limited insofar as the interventions of the Federal Reserve and the SNB aim to address a liquidity risk and not a solvency risk. liquidity to short-term institutions until the financial horizon improves and banks can refinance themselves again under normal market conditions”, replies Louis Harreau, economist in charge of monitoring the European Central Bank, at Credit Agricole CIB.

“We can also assume that this low risk for the taxpayer is lower than the cost that the absence of intervention by these central banks would have caused”, he concludes.