In an interview with our colleagues from RTL Télé, Claude Marx, the director general of the Luxembourg Financial Sector Supervisory Commission (CSSF), reacted to the collapse of the US-based Silicon Valley Bank and the difficulties faced by Crédit Suisse. The latter is one of the world’s largest banks and is widely regarded as “too big to fail.”
After Crédit Suisse shares plummeted earlier this week, some have wondered just how dangerous the crisis at the Swiss bank is for the global financial system. Claude Marx notes that Crédit Suisse has been struggling for a while and gives the all-clear.
Marx explains that the Swiss regulator FINMA has declared that Crédit Suisse is “absolutely solvent.” The share price, he says, is partly determined by people’s faith in the future. When that faith is shaken, as it was in the case of Crédit Suisse, the share price plummets. However, Marx reiterates that, according to the Swiss regulator, the bank is currently not insolvent and has received liquidities from the Swiss Central Bank.
Guy Hoffmann, the president of the Luxembourg Banker’s Association (ABBL), stresses that irrationality can be incredibly dangerous and notes that the drop in share prices at the stock market “basically tells you nothing about the solvency of these banks.”
Crédit Suisse was experiencing serious liquidity issues. After the Swiss Central Bank announced an emergency credit of 50 billion francs, the markets calmed down again.
Hoffmann explains that “the fact that Crédit Suisse is being lent 50 billion also means that it has to deposit 50 billion in valuable guarantees.” If a bank can do that, the ABBL president says, the situation is “not quite as dramatic as it is currently being portrayed.”
As a result, there are no concerns in the EU or in Luxembourg that the situation surrounding Crédit Suisse could lead to a domino effect. The decision by the European Central Bank (ECB) to raise the main interest rate further demonstrates that there is no imminent risk of a financial crisis.
According to Marx, the fact that the ECB has stuck with its plan shows that fighting inflation remains its primary focus.
Full report by RTL Télé (in Luxembourgish):
