Swiss National Bank Chairman Defends Response to Credit Suisse Crisis, According to Reuters

By John Revill

BERN – Swiss National Bank (SNB) Chairman Thomas Jordan defended the central bank’s management of the Credit Suisse crisis, particularly its decision to provide emergency funding to the troubled lender, which deviated from normal operational guidelines.

In remarks delivered at an event in Bern, Jordan explained that the SNB acted decisively by injecting substantial liquidity into Credit Suisse ahead of its acquisition by UBS in March. This intervention was crucial in averting a potential global financial crisis, he noted.

"The SNB’s willingness and ability to provide liquidity were essential in navigating the acute crisis at Credit Suisse, thus preventing a financial downturn with grave economic repercussions for Switzerland and beyond," Jordan stated.

The central bank extended a remarkable 168 billion Swiss francs in emergency liquidity after Credit Suisse experienced significant withdrawals as anxious customers pulled out their funds in March. "Never before had a central bank supplied such a vast amount of liquidity to a single institution," he remarked during the SNB and its Watchers event.

Some of the funds were allocated through an emergency program known as ELA+ (emergency liquidity assistance), which involved offering support secured only by preferential rights in bankruptcy, skipping the required collateral such as mortgages generally demanded by the SNB.

"Without ELA+, Credit Suisse would have faced severe risks of failing to fulfill its financial obligations, posing substantial threats to financial stability," Jordan emphasized.

While the SNB played a vital role in the crisis resolution, Jordan acknowledged there were limits to the central bank’s capabilities and noted crucial lessons to be learned. He suggested that liquidity regulations need to adapt to the reality of rapid and large withdrawals of customer deposits.

Additionally, banks must ensure they have adequate collateral available to present to central banks when seeking emergency liquidity during crises. He also highlighted the necessity for an effective public liquidity backstop to empower the SNB to assist lenders lacking sufficient collateral, backed by a state guarantee.

Jordan concluded by stating that ELA+ should not become a standard part of the SNB’s toolkit.