Central banks move to prevent crisis after UBS buys rival Credit Suisse

Central banks move to prevent crisis after UBS buys rival Credit Suisse

The European Central Bank has joined its US counterpart and central banks from four other countries in a coordinated attempt to calm markets after Swiss bank UBS announced it would buy its rival Credit Suisse for €3 billion.

The banks of England, Japan, Canada, the ECB, the US Federal Reserve and the Swiss National Bank made the announcement on Sunday and said the move would “enhance the provision of liquidity” and allow banks to borrow directly.

The deal will remain in place until at least the end of April and will open a network of swap lines between the banks concerned. The central banks already facilitating transactions in US dollars have agreed to provide 7-day US dollar operations on a daily basis.

The ECB has promised to support eurozone banks with loans if required, mirroring a similar deal that was introduced during the COVID-19 pandemic to lessen the impact on the supply of credit to households and businesses.

In a statement, the President of the European Central Bank said: “I welcome the swift action and the decisions taken by the Swiss authorities. They are instrumental for restoring orderly market conditions and ensuring financial stability”.

The euro area banking sector is resilient, with strong capital and liquidity positions

ECB President Christine Lagarde

“In any case, our policy toolkit is fully equipped to provide liquidity support to the euro area financial system if needed and to preserve the smooth transition of monetary policy,” Lagarde concluded. 

Meanwhile, UBS will now assume up to €5.7 billion in losses and the deal is expected to close at the end of the year.

The deal follows other efforts in Europe and the US to support the banking sector since the collapse of the US lenders Silicon Valley Bank and Signature Bank.

On Friday European shares recorded their worst week in five months.


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