After two significant U.S. companies failed, UBS acquired Credit Suisse. S. last week sparked a frantic, widespread response from the U.S. to stop any further fright.
UBS is purchasing troubled rival Credit Suisse for nearly $3.25 billion to stop further market-shaking turmoil in the global banking system. Alain Berset, the president of Switzerland, described the agreement as “one of great breadth for the stability of international finance” when he announced on Sunday evening. “The effects on the nation and the global financial system of an unchecked collapse of Credit Suisse would be immeasurable. Together with the European Central Bank, the Federal Reserve and Treasury Department approved the agreement.
The historic agreement: ten things you should know:
1) In an all-share deal that includes substantial government guarantees and liquidity provisions, the Swiss bank is paying 3 billion francs ($3.3 billion) for its rival. Compared to Credit Suisse’s 2007 peak, the price per share represented a 99 percent decline.
2) The agreement comes after the failure of two significant U. S. banks last week that prompted a frantic, widespread response from the U.S. S. in order to stop any further fright.
3) Credit Suisse bonds worth roughly 16 billion francs ($17.3 billion) will be eliminated as part of the agreement. In order to give banks a capital safety net when they are in trouble, European bank regulators use a special kind of bond. However, these bonds are intended to be cancelled if a bank’s capital falls below a specific threshold, which was triggered as part of this government-brokered agreement.
4) The merger of the two largest and most well-known Swiss banks, each with illustrious histories dating to the middle of the 19th century, is a thunderclap for Switzerland’s status as a central international financial hub, putting the country on the verge of having a single national banking champion.
5) Credit Suisse is among the 30 financial institutions known as globally systemically important banks, and authorities are worried about the fallout if it were to fail.
6) In response to the Swiss agreement, the world’s central banks announced coordinated financial actions to stabilize banks in the upcoming week. Additionally, banks seeking to borrow U.S. dollars have daily access to a lending facility daily. When the financial crisis of 2008 hit, many people started lending each other dollars when they needed them.
7) These swap lines had been used to withdraw $580 billion three months after Lehman Brothers failed in September 2008. Additionally, additional swap lines were launched amid market turbulence at the start of the COVID-19 pandemic in March 2020.
8) Many of Credit Suisse’s issues are distinct from Silicon Valley Bank’s and Signature Bank’s failures, which necessitated a significant Federal Deposit Insurance Corp. rescue effort, and do not share any flaws with those failures. also the Federal Reserve. Therefore, their failure does not necessarily portend the beginning of a financial crisis like the one that occurred in 2008.
9) Its current issues started after Credit Suisse revealed on Tuesday that managers had found “material weaknesses” in the bank’s internal controls over financial reporting as of the end of the previous year. That increased worries that Credit Suisse would fall as the next domino.
10) Credit Suisse is recognized as one of the most significant banks in the world by the Financial Stability Board, an international organization that keeps an eye on the global financial system. This indicates that regulators are concerned that an uncontrolled failure would have repercussions throughout the financial system, similar to the collapse of Lehman Brothers 15 years ago.
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