The week of 13 to 19 March 2023

Contagion from California

The final crisis of Credit Suisse began far from Zurich. On 10 March 2023 the Californian authorities closed Silicon Valley Bank, a mid-sized lender to technology companies whose depositors had withdrawn their funds within hours once doubts about its bond portfolio became public. Signature Bank in New York followed two days later. The Federal Reserve’s own review later found that the board and management of Silicon Valley Bank had failed to manage their risks and that supervisors had not acted quickly enough on the problems they had identified.¹ The American failures had no direct connection with Credit Suisse. Their effect lay in the lesson that markets and depositors drew from them. A bank that looked adequately capitalised on paper could disappear within days once its depositors decided to leave, and in the age of mobile banking a run no longer needed queues in front of branches.

Credit Suisse entered this environment already weakened by a disclosure problem of its own. On Thursday, 9 March 2023, the day before the closure of Silicon Valley Bank, it postponed the publication of its annual report for 2022 at short notice. The reason was a late call from the American Securities and Exchange Commission about the technical assessment of revisions to the consolidated cash flow statements for 2019 and 2020 and the related controls. When the report finally appeared on Tuesday, 14 March, it disclosed “material weaknesses” in the internal control over financial reporting for 2021 and 2022. It also confirmed that the outflows of the fourth quarter had stabilised at much lower levels without yet reversing.² For an institution whose survival depended on restoring confidence, an admission of deficient controls in the week of an international banking scare was the worst possible timing.

The statement from Riyadh and the reassurance from Bern

On Wednesday, 15 March 2023, the chairman of the Saudi National Bank, Ammar Al Khudairy, was asked in a television interview whether his bank would provide further capital to Credit Suisse if required. His answer was “absolutely not”. The Saudi National Bank held 9.9 per cent of Credit Suisse, and Al Khudairy explained that a larger stake would bring it above a regulatory threshold of ten per cent. The context mattered little to the markets. The share price of Credit Suisse fell by about thirty per cent during the day, and Al Khudairy resigned for “personal reasons” twelve days later. The shares closed at a historic low of 1.69 francs, a fall of almost a quarter compared with the previous day.³

The Swiss authorities reacted on the evening of the same day with a joint statement by FINMA and the Swiss National Bank. The two institutions declared that the problems of certain banks in the United States did not pose a direct risk of contagion for the Swiss financial markets. They added that Credit Suisse met the higher capital and liquidity requirements applicable to systemically important banks and that the SNB would provide it with liquidity if necessary.⁴ The formulation was carefully chosen. It spoke of liquidity, which the central bank could provide against collateral, and it confirmed compliance with capital requirements, which was the legal precondition for such assistance. Later, the sentence on capital adequacy would acquire unexpected significance in the litigation over the additional tier 1 instruments, because bondholders relied on it to argue that the bank had never reached the point of non-viability.⁵

Fifty billion francs that were not enough

In the night from Wednesday to Thursday, Credit Suisse announced that it would draw on the SNB’s covered loan facility and a short-term liquidity facility for up to 50 billion francs, fully collateralised by high-quality assets. At the same time it launched tender offers to buy back senior bonds for up to 2.5 billion dollars and 500 million euros. Körner described these as measures that “demonstrate decisive action to strengthen Credit Suisse”, and the bank pointed to a CET1 ratio of 14.1 per cent at the end of 2022 and a liquidity coverage ratio of about 150 per cent as at 14 March 2023. The share price recovered for a day, rising by almost a fifth on Thursday.⁶

The recovery was short-lived because the liquidity came too late and was of the wrong kind to stop a run of this speed. A case study of the Yale Program on Financial Stability reconstructs the daily deposit outflows. They amounted to 1.6 billion francs on 13 March, 2.7 billion on 14 March, 13.2 billion on 15 March and between 14 and 17 billion on 16 March. On 16 March Credit Suisse drew 38 billion francs of emergency liquidity assistance under the SNB’s standing arrangements and ten billion francs from the liquidity-shortage financing facility.⁷ The eligible collateral of the bank was limited, and the outflows threatened to exhaust it within days. Thomas Jordan, the Chairman of the SNB’s Governing Board, later explained that Credit Suisse had not prepared sufficient assets that it could transfer to the central bank, which made extraordinary measures necessary.⁸

The weekend

The decisive negotiations took place between Thursday, 16 March, and Sunday evening, 19 March 2023. The Federal Council, the Federal Department of Finance, FINMA and the SNB had concluded by the middle of the week that a takeover by UBS was the preferred option. According to the parliamentary investigation committee, all authorities favoured it by mid-March 2023, although the committee observed that a solution involving a foreign bank might have been better for competition in the long term.⁹ The alternatives were well known to the participants. A resolution under the too-big-to-fail regime would have required FINMA to convert bail-in debt into equity and recapitalise the bank, which carried the risk of triggering a global run on an institution whose business spanned dozens of jurisdictions. Temporary public ownership would have placed the Confederation in the position of owner of a loss-making global investment bank. The Federal Department of Finance later stated that it was highly doubtful whether a further capital increase and restructuring could have restored the necessary confidence, given the severe loss of trust before 18 and 19 March 2023.¹⁰

UBS entered the negotiations as a reluctant buyer with considerable leverage. Its chairman, Colm Kelleher, made clear that the transaction was attractive for UBS shareholders only on conditions that protected UBS against the risks of Credit Suisse’s balance sheet. International authorities followed the talks closely, because Credit Suisse had significant operations in New York and London and any failure would have tested cross-border resolution arrangements that had never been used at this scale. FINMA stated that it had coordinated with the Federal Reserve and the Prudential Regulation Authority, among others.¹¹ The Credit Suisse board was presented with terms that left it no real alternative. A shareholder vote, which Swiss merger law would normally require, was excluded by the emergency ordinance, so that the deal could be signed and announced on Sunday, 19 March 2023, before the markets reopened.¹²

The press conference on Sunday evening reflected the unusual constellation of the weekend. Finance Minister Karin Keller-Sutter described the transaction as “a commercial solution and not a bailout”. Kelleher called it “attractive for UBS shareholders” while adding that, as far as Credit Suisse was concerned, it was “an emergency rescue”. President Alain Berset said that the turmoil in the banking industry had destabilised Credit Suisse and that the agreement was vital for stabilising the bank and the global banking sector.¹³ On the same Sunday the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, the Federal Reserve and the Swiss National Bank announced that from Monday, 20 March, they would offer their seven-day US dollar swap operations daily. The coordinated action was intended to ease strains in global funding markets.¹⁴ Its timing showed that the central banks regarded the Zurich weekend as an event of global significance.

Notes

1. Board of Governors of the Federal Reserve System, press release of 28 April 2023 on the review of the supervision and regulation of Silicon Valley Bank, https://www.federalreserve.gov/newsevents/pressreleases/bcreg20230428a.htm. The review notes that the bank had 31 unaddressed supervisory findings at the time of its failure. ↩
2. CNBC, “Credit Suisse to delay its 2022 annual report after a ‘late call’ from the SEC”, 9 March 2023, https://www.cnbc.com/2023/03/09/credit-suisse-to-delay-its-2022-annual-report-after-a-late-call-with-the-sec.html. The bank stated that it considered it “prudent to briefly delay the publication” and that its previously announced results were not affected; CNBC, “Credit Suisse shares sink as ‘material weaknesses’ found in financial reporting”, 14 March 2023, https://www.cnbc.com/2023/03/14/credit-suisse-finds-material-weaknesses-in-financial-reporting-says-outflows-not-yet-reversed.html. ↩
3. swissinfo.ch, “Saudi National Bank chair resigns after Credit Suisse comment”, 27 March 2023, https://www.swissinfo.ch/eng/business/saudi-national-bank-chair-resigns-after-credit-suisse-comment/48394432. The resignation was announced through a filing with the Saudi stock exchange Tadawul; swissinfo.ch, “Credit Suisse to borrow up to CHF50 billion from Swiss National Bank”, 16 March 2023, https://www.swissinfo.ch/eng/business/swiss-central-bank-ready-to-backstop-credit-suisse-with-funds/48364116. Another large shareholder, Harris Associates, announced at the same time that it had sold its stake. ↩
4. swissinfo.ch, 16 March 2023 (cited above), which quotes the joint statement: “If necessary, the SNB will provide CS with liquidity.” The statement is also listed on the website of the SNB as a joint press release of 15 March 2023, https://www.snb.ch/en/publications/communication/press-releases/2023/pre_20230315. ↩
5. Prager Dreifuss, “An Overview of the Appeals Against FINMA’s Decision to Write Off All of Credit Suisse’s AT1 Bonds”, 28 March 2024, https://www.prager-dreifuss.com/en/news/an-overview-of-the-appeals-against-finmas-decision-to-write-off-all-of-credit-suisse39s-at1-bonds-1130. The article summarises the appellants’ reliance on the joint statement of 15 March 2023. ↩
6. Credit Suisse Group AG, announcement of 16 March 2023, Form 6-K, https://www.sec.gov/Archives/edgar/data/1053092/000137036823000035/a230316-6k-tenderoffer.htm. The tender offers were to expire on 22 March 2023; swissinfo.ch, 16 March 2023 (cited above). ↩
7. Jack French, Owen Heaphy and Steven Kelly, “Switzerland: Credit Suisse Emergency Liquidity Program, 2023”, Journal of Financial Crises (Yale Program on Financial Stability), https://elischolar.library.yale.edu/cgi/viewcontent.cgi?article=1628&context=journal-of-financial-crises. The study gives the daily outflows and the drawings under each facility. ↩
8. Thomas J. Jordan, speech of 1 November 2023, https://www.snb.ch/public/asset/en/www-snb-ch/publications/communication/speeches/2023/ref_20231101_tjn/publications0_en/ref_20231101_tjn.en.pdf. Jordan drew the lesson that deposit outflows can be much faster and more extensive than assumed by existing regulations and that banks must hold sufficient collateral for the SNB and other central banks. ↩
9. Watson, “Der PUK-Bericht zum CS-Niedergang – das Wichtigste in 6 Punkten”, 20 December 2024, https://www.watson.ch/wirtschaft/schweiz/544727568-die-wichtigsten-punkte-des-puk-berichts-zum-niedergang-der-cs. The article summarises the committee’s conclusion that the takeover by UBS was appropriate in the acute circumstances. ↩
10. Federal Department of Finance, “FAQ Credit Suisse”, https://www.efd.admin.ch/dam/en/sd-web/33TxQXz9VIJa/faq-cs-ubs-en.pdf, section on why the too-big-to-fail instruments were not applied. ↩
11. FINMA, “FINMA approves merger of UBS and Credit Suisse”, press release of 19 March 2023, https://www.finma.ch/en/news/2023/03/20230319-mm-cs-ubs/. ↩
12. Ahram Online (Associated Press), “Banking giant UBS acquiring Credit Suisse for $3.2 bln”, 19 March 2023, https://english.ahram.org.eg/News/492017.aspx, reporting that the Federal Council “passed an emergency ordinance that allows the merger to go through without the approval of shareholders”. The exclusion of the shareholder vote is documented in section III below. ↩
13. CNBC, “UBS buys Credit Suisse for $3.2 billion as regulators look to shore up the global banking system”, 19 March 2023, https://www.cnbc.com/amp/2023/03/19/ubs-agrees-to-buy-credit-suisse-as-regulators-look-to-shore-up-global-banking-system.html; NPR, “UBS to buy troubled Credit Suisse in deal brokered by Swiss government”, 19 March 2023, https://www.npr.org/2023/03/19/1164600167/banking-troubles-go-global-swiss-force-deal-between-ubs-credit-suisse. ↩
14. Board of Governors of the Federal Reserve System, “Coordinated central bank action to enhance the provision of U.S. dollar liquidity”, press release of 19 March 2023, https://www.federalreserve.gov/newsevents/pressreleases/monetary20230319a.htm. ↩

For general information only. This article does not constitute legal or tax advice, does not replace advice on an individual case and creates no lawyer-client relationship. It reflects the legal position as of September 2025.