A plunging stock price, insolvency speculations, investor appeasements: a lot of things seem to be going wrong at Credit Suisse. Some observers are prophesying the collapse of Switzerland’s second-largest bank. Here, we explain what that scenario would mean for Swiss consumers.
How likely is a bankruptcy at Credit Suisse?
It is difficult to determine exactly how bad things really are at Credit Suisse. The bank itself has not commented on the speculations, and did not respond to an inquiry by moneyland.ch. The bank’s next quarterly report will be published at the end of October, and it is likely that the bank will announce a restructuring plan at that time. What is clear is that many market observers see the possibility of bankruptcy as much more likely now, compared to the beginning of the year. Investors use credit default swaps (CDSs) to bet on the bank’s future creditworthiness, and the prices of Credit Suisse CDSs are the highest they have been since last decade’s financial crisis.
The current prices of Credit Suisse CDSs do not point to bank failure, but they do show that the market sees a bankruptcy within the next five years as 25 percent more likely. So on the whole, a bankruptcy is still considered unlikely.
Marc Chesney, professor of finance at the University of Zurich, and author of the book “A Permanent Crisis” told moneyland.ch: “Credit Suisse is in a catastrophic state. Without the state guarantee, the bank would probably be bankrupt already.” But whether or not Credit Suisse could actually declare bankruptcy is ultimately a political decision, and is impossible to predict in advance.
What would happen to my money if Credit Suisse went bankrupt?
Like UBS, Postfinance, Raiffeisen, and the Zürcher Kantonalbank, Credit Suisse Switzerland is considered too big to fail. According to Esisuisse, the organization responsible for bank depositor protection, all of these banks have taken precautionary measures and prepared emergency plans. These should ensure the seamless operation of Switzerland’s internal banking services, even if one of these banks were to end up in a hazardous position. Additionally, the Swiss federal government will likely bolster Credit Suisse with liquidity injections in a worst-case scenario.
In the unlikely event that a bankruptcy occurs in spite of these measures, your Credit Suisse account balances would fall under Swiss bank depositor protection. As long as you have less than 100,000 francs at Credit Suisse, your wealth should be secure – at least in theory. You can find detailed information about what happens to your money when a bank goes bankrupt here.
As a customer, you do not have to take any proactive steps yourself. You will be contacted by the liquidator handling the bankruptcy and will receive a form which you can use to request payment of insured balances. According to Esisuisse, you will have to wait a minimum of several weeks before you receive any money.
Which accounts are protected from bank failures?
Depositor protection applies to the balances of Swiss bank accounts and to the principal of Swiss medium-term notes, whether these are denominated by Swiss francs or by other national currencies. But only up to a maximum of 100,000 francs per customer and bank are secured. If you hold more than 100,000 francs in Credit Suisse account balances and medium-term notes, then only part of your wealth is insured. The number of individual Credit Suisse accounts and medium-term notes which your money is divided between is irrelevant.
Vested benefits accounts and pillar 3a accounts are not covered by depositor protection. But up to 100,000 francs of retirement savings are considered privileged assets. These are paid out as soon as possible, if the bank’s liquid assets are sufficient to cover them.
Would depositor protection be sufficient if Credit Suisse went bankrupt?
Swiss depositor protection is limited to a maximum total sum insured of 6 billion francs. That means, if a bank which manages more than 6 billion francs of eligible deposits were to go bankrupt, the depositor protection scheme can only pay out benefits in relation to the total sum insured.
The volume of deposits under management by Credit Suisse is vastly higher than the 6 billion francs covered by depositor protection. So, in the worst-case scenario, you may only be able to reclaim a small fraction of your total insured assets.
Exactly what portion of eligible deposits held at Credit Suisse is effectively covered by depositor protection is unclear. Credit Suisse did not reply to an inquiry from moneyland.ch in this regard. In the best case, a maximum of 100,000 francs per Credit Suisse customer is insured. It is safe to assume that many depositors hold more than 100,000 francs at Credit Suisse.
Additionally, the depositor protection scheme is only activated once a bank’s liquid assets have been used to repay privileged assets. So there would likely be more money available than just the 6 billion francs covered by the depositor protection scheme.
It is also worth noting that as from 2023, the maximum sum insured by Esisuisse will be raised to around 8 billion francs. The Swiss Federal Council has the authority to further raise the sum insured for depositor protection, if exceptional circumstances require this.
What would happen to my Credit Suisse account if the bank went bankrupt?
If a bank were to declare bankruptcy, your accounts at that bank would no longer be usable. That means you would not be able to make outgoing transfers or receive money into those accounts. If, for example, your salary was previously paid to an account at that bank, you will have to provide your employer with a different account for their payroll. Standing orders (rental payments, for example) will also no longer be carried out. The online banking and payment cards from the insolvent bank will also no longer work.
What would happen to my securities if Credit Suisse went bankrupt?
Securities are not covered by depositor protection, but if you are their legal owner, then you retain ownership of them even when they are held by a custodian bank. You would not lose these securities if the bank failed. Instead, you can transfer them to a custody account at a different bank. Shares in ETFs and other investment funds, including shares in funds issued by Credit Suisse, would also remain your property and be turned over to you if Credit Suisse went bankrupt.
The same rule applies to securities you own which make up part of your pillar 3a assets or vested benefits. In a bankruptcy, these securities will be delivered to the retirement foundation.
Shares in Credit Suisse stock may become completely worthless if the company went bankrupt. Structured products issued by Credit Suisse may also lose all their value.
What would happen to my Credit Suisse mortgage if the bank failed?
When a bank goes bankrupt, it normally sells the mortgages it holds to other mortgage lenders. So you continue to owe the outstanding debt, as per your mortgage agreement.
How would a Credit Suisse bankruptcy affect Switzerland’s economy?
If a major bank like Credit Suisse were to fail, the consequences would reach much further than its customer circle. Chesney from the University of Zurich notes that a bankruptcy of this kind would have far-reaching consequences for many other financial services providers. So the bankruptcy would place other companies in jeopardy. “But we will only really be able to see how far Credit Suisse’s footprint reaches and who will be impacted if and when the bankruptcy actually occurs.”
He recollects the Lehman Brothers investment bank, whose bankruptcy in 2008 triggered a worldwide recession and led to the failure of numerous other companies. “So it is a question of how much Swiss taxpayers will have to pay to cover the costs of an eventual Credit Suisse bankruptcy.”
Credit Suisse is one of Switzerland’s major employers. Accounting for part-time and full-time employees, the equivalent of 16,000 full-time jobs would be lost if the bank were to shut down.
What should Credit Suisse customers do?
A bankruptcy at Credit Suisse is still considered unlikely. But regardless of a bank’s financial situation, dividing your assets between many different banks is always a sensible thing to do. It is also beneficial to regularly compare the banking products you use with offers from competitors. Differences in costs and interest can be large in some cases. So depending on the services you use, moving to a different bank can be a good financial move regardless of the Situation at Credit Suisse.
More on this topic:
Bank Failure: A Guide to Swiss Depositor Protection
Compare Swiss savings accounts now
Compare Swiss private accounts now
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