Chairman of the Swiss National Bank (SNB), Thomas Jordan, defended the central bank’s actions on Wednesday in addressing the Credit Suisse issue, including giving the struggling firm emergency funds in defiance of its regular procedures.
Before UBS (UBSG.S.) acquired the bank in March, the SNB gave Credit Suisse enormous liquidity, which created time for a solution, Jordan said at a Berne event. He claimed that the bank’s takeover, which had collapsed, had stopped a worldwide financial catastrophe.
“The SNB’s willingness and ability to provide liquidity was crucial in managing the acute crisis at Credit Suisse and thus in avoiding a financial crisis with serious economic consequences for Switzerland and the rest of the world,” Jordan stated.
The SNB supplied emergency liquidity of 168 billion Swiss francs ($185 billion) in response to Credit Suisse’s significant fund withdrawals in March caused by uneasy clients.
Jordan told the SNB and its Watchers event, “Never before had a central bank provided such a large amount of liquidity to a single bank.”
Some funds were given under the emergency liquidity assistance program, or ELA+. The SNB frequently demands collateral, such as mortgages, but this time, preferential rights in bankruptcy proceedings served as the only form of security for the funds.
“Without ELA+ Credit Suisse would have been in jeopardy of being unable to meet its financial obligations … entailing substantial risks for financial stability,” Jordan stated.
Although the SNB was crucial in helping to resolve the issue, he noted there were still vital lessons to be learned and boundaries to the central bank’s authority. According to Jordan, laws governing liquidity need to be modified given the increasing and quicker outflow of consumer deposits.
Additionally, for banks to transfer enough collateral to central banks in times of crisis and get emergency funding, this preparation was essential. To help the SNB supply liquidity to lenders that lack enough collateral and are protected by a state guarantee, there is also a solid public liquidity backstop. “ELA+ should not become part of the SNB’s regular set of instruments,” Jordan stated.
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