Switzerland’s triple A rating is now in jeopardy

The Credit Suisse crisis may turn out to be very bad for Switzerland as a financial headquarters. European rating agency Scope sees the country’s triple A (AAA) rating so far at risk, if not from the effects of the banking collapse. Scoop recognizes the country’s many strengths, such as a thriving and competitive economy, low national debt, and excellent access to capital markets. “However, the huge banking sector could become a rating risk for Switzerland in the event of a severe financial crisis with significant impacts on public finances and the real economy,” warns Julian Zimmermann, Scope Analyst.

A higher AAA rating tells investors that there is a very low risk of default, which is why countries like Switzerland and Germany can borrow at a relatively low rate. According to Scope, the total assets of the Swiss banking system amounted to 3.5 trillion Swiss francs at the end of 2022, or about 448% of GDP. “The merger thus leads to a higher concentration of default risk for Switzerland,” he adds in his scoping analysis.

Credit Suisse’s bailout revealed a collective failure, focused in particular on the supervisory authorities. In a complex process, they identify each year the most dangerous banks in the world. Credit Suisse was rated 23 out of 30 in the latest assessment. As a result of the failed assessment, taxpayers will have to take responsibility for a failing bank. Just a few days ago, representatives of the European financial sector were smugly looking in the direction of California.

The Silicon Valley Bank (SVB), which specializes in founders, collapsed there unexpectedly and from Europe it was ruled out that something like this could happen on the old continent. After all, as said, the SVB wasn’t following a very particular business model and was less prepared for a potential imbalance. US authorities have relaxed some regulatory requirements, while in Europe, by contrast, officials have stuck firm. Barely a week later, the landscape had changed drastically. Credit Suisse, one of the world’s largest banks, has resorted to a forced state-orchestrated merger with arch-rival UBS.

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The bailiff duly insured her involuntary mission and the Berne government guaranteed nine billion francs for possible losses. But even so, many analysts doubt that the operation is risk-free. The executive director of the German Institute for Economic Research, Marcel Fracher, suspects that a more serious situation was behind the intervention. “It amazes me how quickly and massively the US and Swiss central banks rushed to the aid of Silicon Valley Bank and Credit Suisse, it makes me afraid that the situation is much more serious than what we are seeing at the moment,” he admitted in remarks to Die Welt.

He asserts that, in this view, “what is lacking is a mechanism to ensure that bailed out banks return that money when the good times return… It is a matter of creating clever economic incentives so that bank management does not take risks that would end up costing taxpayers their salaries.” The banking industry transcends the good and the bad. We are talking about the staff Who get big bonuses when things go well, but a generous fixed salary when things go wrong.

The ECB does not enter into this rhetoric and confines itself to repeating over and over again that the European financial system is “strong”, as did the bank’s president, Christine Lagarde, yesterday in Basel, who also made an effort to separate the banking crisis from focus by setting a date for the decision on the digital euro: next October. The European Central Bank’s head of banking supervision, Andrea Enrea, also insisted, “The European sector closed last year with strong capital numbers.

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“Bank capital and liquidity remained strong and were well above minimum requirements,” he told the Economic and Monetary Committee (ECON) of the European Union Parliament in Brussels. According to Enria, at the end of 2022 capital ratio Ordinary Equity Level 1 (CET 1) of entities 15.3%. It was still at 14.7 at the end of the third quarter of 2022. But he still used the opportunity to urge banks to be vigilant about credit risk. “The first set of challenges is cyclical,” he explained in his annual report: “Credit risk could increase, loans to energy-intensive companies increase, and greater vigilance is required about deteriorating credit quality.

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