05 April 2023

Bloomberg:Credit Suisse’s Fatal Bank Run Points to Gaps in Liquidity Rules

Credit Suisse AG was hit by renewed outflows over several days last month that took it to the brink of bankruptcy, even when it was supposed to have enough funds to cover a month of deposit flight.

As Swiss officials and Credit Suisse executives emphasized this week that the firm’s emergency sale staved off imminent collapse, they highlighted how sharp the run was. The bank had 120 billion francs at the end of December to cover the 83 billion francs of net outflows it expected over a brutal 30 days, and said that as of March 14, that ratio had improved. But just a few days later, it was on the brink.

That’s thrown into spotlight just how prepared lenders are to weather a crisis and return money to depositors on demand. Swiss Finance Minister Karin Keller-Sutter and Marlene Amstad, head of Swiss financial watchdog Finma, both indicated that Credit Suisse was teetering on the brink of bankruptcy at the time of its government-backed rescue on March 19. Amstad said Credit Suisse suffered an “unprecedented” bank run at a press conference on Wednesday.

Regulators are reviewing how quickly depositors not covered by an insurance scheme can pull their money when doubts emerge about a bank’s viability, Bloomberg has reported. There’s a growing consensus that previous estimates putting the so-called runoff rate as low as 10% among retail deposits is obsolete because of how quickly destabilizing rumors can spread on social media, as well as the ease with which money can be moved.

The 167-old lender was forced into an emergency weekend takeover even though Swiss authorities said a couple days prior that it met all regulatory capital and liquidity requirements. Finma said it had begun to ratchet up demands on the lender a few years ago, having asked for higher liquidity buffers from Credit Suisse as early as 2020....

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