World markets set for relief after UBS rescues Credit Suisse :
The failure of two US banks and the rout in Credit Suisse shares have sent shockwaves through the financial markets, with European banks sliding almost 12% and Japanese banks falling almost 11% - their biggest weekly drop since the March 2020 Covid-induced market turmoil. US bank shares have also notched double-digit losses for two straight weeks.
In response to the turmoil, central banks including the Federal Reserve, the European Central Bank, and the Bank of Japan have announced a coordinated move to enhance dollar swap lines, which has helped to calm investors. The move is expected to boost risk appetite and lead to a bounce in financial markets.
Analysts have expressed cautious optimism about the UBS-Credit Suisse deal, with some saying that it represents a very large and decisive intervention. However, there are concerns about the losses that Credit Suisse junior bondholders are likely to suffer under the deal.
The decision to write down the value of Credit Suisse's Additional Tier 1 bonds to zero under the deal has been criticized by some bondholders, who feel that they have been wiped out. Nevertheless, analysts believe that the basic functioning of the banking system has been protected.
Overall, the UBS-Credit Suisse deal represents a major effort to restore confidence in the banking system and prevent a crisis of confidence from destabilizing financial markets. The response of the US, UK, and Swiss central banks to the deal will be closely watched in the week ahead, as policymakers work to ensure the resilience of their banking sectors.
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