While the market is relieved when Credit Suisse (CS), a global investment bank that was feared to have a global impact in the collapse, is sold to UBS, Western central banks, including the U.S., are trying to calm the market by expanding liquidity supply to the banking sector.
According to Reuters and Bloomberg News on the 19th (local time), UBS has decided to acquire Credit Suisse, which is in a management crisis, for 3 billion Swiss francs.
UBS estimates losses from the acquisition, which will be completed by the end of this year, will be $5.4 billion, while the Swiss National Bank (SNB) will provide up to 100 billion Swiss francs in liquidity to UBS to support the acquisition.
The European Central Bank (ECB) has also pledged to provide loans to eurozone banks if necessary.
In addition, the news that the U.S. Federal Deposit Insurance Corporation (FDIC), which recently acquired the assets of the closed Signature Bank, agreed to sell the assets and debts of the Signature Bank to the U.S. bank “New York Community Bancorp” added market relief.
Meanwhile, the U.S. Federal Reserve System (Fed) and central banks of five countries, Canada, the U.K., Japan, ECB, and Switzerland, decided to take joint action to increase liquidity in the dollar swap agreement after UBS announced its acquisition of CS.
In a statement, they said they will increase the frequency of the seven-day maturity from weekly to daily by at least the end of next month to increase the effect of dollar supply from the dollar swap.
The swap agreement is a deposit of a certain amount of their currency by the central banks of the agreement countries to stabilize the exchange rate, which can give each country with dollar-denominated debt a breather at a time when the financial environment is strained and dollar liquidity is insufficient.
European Central Bank (ECB) President Christine Lagarde called the Swiss authorities’ action to lead UBS’s acquisition of CS “quick action”.