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The Guardian - UK
The Guardian - UK
Business
Graeme Wearden

ECB’s Lagarde insists banks much stronger than in 2008 after raising interest rates despite Credit Suisse turmoil – as it happened

Credit Suisse United States ECB Tony Sycamore European Central Bank Finma Inflation SNB the Swiss National Bank
The logo of Swiss bank Credit Suisse on a building in Zurich, Switzerland.
The Swiss bank’s logo on a building in Zurich. Photograph: Michael Buholzer/EPA

Closing post

Time to recap.

The European Central Bank has pressed on with its plan to hike borrowing costs, despite the turmoil in the financial system.

The ECB lifted its benchmake rates by half a percent, or 50 basis points, “in line with its determination” to bring inflation down to its 2% target.

The decision surprised some investors, who thought the crisis gripping Credit Suise could have encouraged the ECB to rethink its plans. Three or four policymakers did fail to back the plan, though.

ECB president Christine Lagarde told reporters in Frankfurt that Europe’s banks were much stronger than in the financial crisis 15 years ago, saying:

“I was around in 2008, so I have clear recollection of what happened and what we had to do, we did reform the framework, we did agree on Basel III. We did increase the capital ratio, we did increase the financial coverage ratio as well.

And I think that the banking sector is currently in a much, much stronger position than where it was back in 2008.”

Lagarde also cautioned that “The outlook for economic growth is tilted to the downside”, and that the market tensions could led to tighter credit conditions and hurt confidence.

Shares in Credit Suisse have rebounded today, after it revealed plans to borrow up to 50bn Swiss francs (£44bn) from the Swiss central bank to boost liquidity and calm investors.

Credit Suisse shares are up 19% in late trading, meaning it has recovered much – but not all – of Wednesday’s 24% tumble.

In the US, the biggest banks are reportedly discussing a joint rescue of regional lender First Republic. Its shares are down almost 20% in late trading.

European markets are staging a moderate rebound after heavy losses yesterday. The FTSE 100 is up 72 points, or 1%, at 7415 points, having tumbled 3.8% yesterday.

In other news:

America’s labour market was stronger than expected, as employers continued to hold onto workers.

There were 192,000 new ‘initial claims’ for unemployment support last week, down from 212,00 the previous week, and lower than the 205,000 claims forecast.

WSJ: Biggest US banks race to rescue First Republic

Over in the US, shares in regional bank First Republic are down 26% today, despite reports of a potential rescue deal.

The Wall Street Journal says that several banks including JPMorgan Chase & Co and Morgan Stanley are in talks with First Republic Bank for a potential deal.

The deal could involve capital infusion to bolster the troubled lender after the collapse of Silicon Valley Bank last week, which triggered fears of a contagion, the WSJ says.

A full takeover is also a possibility, though less certain, the report added.

The report says:

The biggest banks in the U.S., including JPMorgan Chase & Co., are discussing a joint rescue of First Republic Bank that could include a sizable capital infusion to shore up the beleaguered lender, people familiar with the matter said

JPMorgan is working with Citigroup Inc., Bank of America Corp. and Wells Fargo & Co. to provide a lifeline to First Republic, the people said.

Others involved include Morgan Stanley and Goldman Sachs Group Inc. as well as U.S. Bancorp and PNC Financial Services Group Inc. the people said.

First Republic’s shares had fallen over 30% at the start of trading, before a modest recovery.

The FT have a good story on the banking crisis today.

They report that Europe’s financial regulators are furious with their US counterparts over the handling of the Silicon Valley Bank collapse, and are privately accusing US authorities of tearing up a rule book for failed banks that they had helped to create.

They say:

While the disapproval has yet to be conveyed in a formal setting, some of the region’s top policymakers are seething over the decision to cover all depositors at SVB, fearing it will undermine a globally agreed regime.

One senior eurozone official described their shock at the “total and utter incompetence” of US authorities, particularly after a decade and a half of “long and boring meetings” with Americans advocating an end to bailouts.

Europe’s supervisors are particularly irate at the US decision to break with its own standard of guaranteeing only the first $250,000 of deposits by invoking a “systemic risk exception” — despite claiming the California-based lender was too small to face rules aimed at preventing a rerun of the 2008 global financial crisis.

“This is the US version of the small Venetian banks,” said one French policy expert, referring to the US’s criticism of Europe’s handling of the Monte dei Paschi debacle. “You are always systemic for somebody.”

Bloomberg: ECB’s Guindos told ministers some EU banks may be vulnerable on rates

Interesting… Bloomberg are reporting that ECB vice-president Luis de Guindos told finance ministers on Tuesday that some European Union banks could be vulnerable to financial strain due to rising interest rates.

Bloomberg’s Alberto Nardelli writes:

Elaborating on the state of the financial industry after the collapse of Silicon Valley Bank, Guindos told the regular Ecofin meeting in Brussels that lenders in the region are much less exposed than their US counterparts, according to people familiar with the talks, who declined to be identified discussing private conversations.

All the same, Guindos said that the ECB couldn’t rule out that some lenders might be at risk because of their business models, according to the people. He cautioned not to be complacent and warned that a lack of confidence could trigger contagion.

An ECB spokesman declined to comment on the meeting.

The discussion took place before a collapse in Credit Suisse Group AG’s share price prompted Switzerland’s central bank to offer it liquidity.

Updated

Germany’s financial regulator BaFin has said it is looking closely at current market developments and that the German financial system is still stable and robust, Reuters reports.

Lagarde: It's not business as usual

Christine Lagarde repeats her confidence in the eurozone banking sector, saying it is resilient, with strong capital and liquidity positions.

She says the ECB is “monitoring the particular situation” and the market tensions, and stands ready to respond.

It’s not business as usual, but we believe that the decision that we have taken is robust, completely justified by the circumstances and informed by our current analysis.

Q: Is the turmoil in the banking sector a US-specific problem?

Lagarde points out that the Basel 3 rules apply internationally, although there is argument about who implements them better.

In Europe, we have strong supervision, we have strong capital, and we have solid liquidity positions.

Lagarde adds that exposures to certain sectors are not concentrated in particular banks, so the eurozone does not have a situation similar to that in California.

Luis de Guindos, the ECB’s vice-president, points out that Silicon Valley Bank’s business model “was quite unique”, with a mismatch between the assets and liabilities.

[SVB created a maturity mismatch by buying US government bonds at the peak of the market. Their face value fell as interest rates rose, meaning it faced losses when customers withdrew their funds].

History will judge whether today’s interest rate rise from the European Central Bank is wise, or foolhardy.

But it wouldn’t be the first time that the ECB has blundered by focusing on inflation when a crisis was raging.

In July 2008 it raised rates, only to reverse that move a few months later when Lehman Brothers failed.

At the press conference, Christine Lagarde is asked whether it could be making a similar mistake today.

She replies that the ECB is mindful of its history, but confident that today’s decision is ‘robust’, and what is needed.

Lagarde says:

The banks are in a completely different position from 2008. And, you know, crises are never exactly the same anyway.

She repeats her earlier point that the architecture of the banking system, the framework within which they operate, and the supervision of the banking system have all been considerably improved since 2008.

In July 2011, the ECB also raised rates despite the outbreak of the eurozone debt crisis, as it persisted with fighting inflation.

Lagarde then gets a question about greedflation – a hot topic after it emerged earlier this month that the ECB council has been shown evidence that profit margins had been rising rather than falling.

Q: What contribution are corporate profits making to inflation?

The ECB president replies today’s statement from the ECB points out that “many firms were able to raise their profit margins in sectors faced with constrained supply and resurgent demand”.

Lagarde says the ECB hopes to see a proper burden-sharing of the cost-shock which has hit the eurozone, saying it is effectively a tax.

The tax should be shared. There should be burden-sharing.

Such burden sharing (with firms not whacking up their profit margins) would reduce the risk of rising prices pushing up wages, Lagarde suggests.

Such burden-sharing needs to be debated, she adds.

Q: Will the ECB slow the pace of its rate hikes because of financial stability?

Lagarde insists there is no trade off between price stability and financial stability.

We are demonstrating thistoday, she says, by addressing the price stability issue by raising interest rate by 50 basis points – as intended – because inflation is over target.

We also are monitoring market tensions, Lagarde reports, adding that:

We stand ready to provide any kind of additional facilities needed.

ECB rate rise was not unanimous

Today’s decision to raise interest rates by 50 basis points was not unanimous, Christine Lagarde, reveals, but it was taken quickly.

The ECB president explaints the executive board proposed today’s decision, and it was adopted by “a very large majority” of the governing council.

But, three or four members that did not support the decision [out of the 26 members of the governing council].

Lagards says these dissenters were keen to probably give a bit more time to see how the situation unfolds, and collect additional data. “Otherwise, it was a very large majority decisionm” she insists.

Updated

Christine Lagade insists that the ECB’s determination to fight inflation is intact, and should not be doubted.

She says:

We are not waning on our commitment to fight inflation and we are determined to return inflation back to 2% target in the medium term.

Lagarde: Banks are much stronger than in 2008

Q: Are we on the verge of a systemic crisis like in 2008?

Lagarde repeats that the ECB’s Governing Council is “monitoring current market tensions closely” and stands ready to respond as necessary to preserve price stability and financial stability.

She reminds reporters that she involved in the 2008 financial crisis [as France’s finance minister], and knows that reforms have been implemented since those dramatic days.

She says policymakers reformed the framework to strengthen the financial system, agreed on the Basel III regulatory framework, increased the capital ratio (determining how much capital banks must hold in case of crisis) and increase the financial coverage ratio.

She adds:

I think that the banking sector is currently in a much much stronger position than it was back in 2008.

We do have tools and facilities on hand too, Lagarde says.

The ECB president adds that “we have all worked hard in the last few days, and particularly the last few hours”.

She says the ECB staff can act quickly and creatively if they need to fight a liquidity crisis.

Our staff…have demonstrated in the past that they can also exercise creativity in very short order, in case it is needed to respond to what could be a liquidity crisis, if there was such a thing.

But, this is not what we are seeing.

Updated

Q: How do you see the path for interest rates ahead? You haven’t given any guidance at today’s meeting – have we reached peak interest rates?

Lagarde explains that three components will determine future rate decisions.

Thet are 1) the incoming economic and financial data, 2) the dynamics of underlying inflation, and 3) the strength of monetary policy transmission.

Lagarde adds that:

If our baseline was to persist when the uncertainty reduces we know that we have a lot more ground to cover. But it’s a big caveat.

She also explains that the ECB’s latest forecasts were drawn up before the recent financial tensions blew up, so they do not incorporate any of the most recent developments.

Christine Lagarde then explains that market interest rates rose considerably in the weeks after the ECB’s last meeting in early February.

But, she adds, the increase has “strongly reversed over recent days” amid the severe financial market tensions.

Bank credit to euro area firms has become more expensive. Credit to firms has weakened further, owing to lower demand and tighter credit supply conditions

Household borrowing has become more expensive as well, especially owing to higher mortgage rates.

This rise in borrowincg costs has hit demand, and led to a further slowdown in the growth of loans to households, she adds.

Lagarde: financial market tension could hit confidence

The risks to the outlook for economic growth are tilted to the downside, Christine Lagarde warns.

In a nod to the turmoil in the markets of late, the ECB president says:

Persistently elevated financial market tensions could tighten broader credit conditions more strongly than expected and dampen confidence.

Russia’s unjustified war against Ukraine and its people continues to be a significant downside risk to the eocnomy and could again push up the cost of energy and food.

She adds the could also be a drag on eurozone growth if the global economy weakens more sharply than expected.

Christine Lagarde explains that the euro area stagnated in the 4th quarter of 2022, thus avoiding the contraction which had been previously expected.

She predicts that the economy will recover over coming quarters, and says the eurozone's labour market is strong.

The ECB president says:

“The economy looks set to recover over the coming quarters. Industrial production should pick up as supply conditions improve further, confidence continues to recover and firms work off large order backlogs.”

Lagarde says that government efforts to help households with high energy bills should be temporary and targeted, and designed to encourage people to use less energy.

Christine Lagarde outlines the ECB’s new inflation projections, which are lower than three months ago.

ECB staff now see inflation averaging 5.3% in 2023 (down from 6.3% previously forecast), 2.9% in 2024 (down from 3.4%), and 2.1% in 2025 (down from 2.3%), she says.

But core inflation is a concern.

Lagarde says:

At the same time, underlying price pressures remain strong. Inflation excluding energy and food continued to increase in February and ECB staff expect it to average 4.6% in 2023, which is higher than foreseen in the December projections.

Christine Lagarde holds press conference

European Central Bank president Christine Lagarde is giving a press conference now, outlining today’s decisions.

She’s starting by reading out the statement issued half an hour ago, explaining that the ECB has increased the rate on its key interest rates by 50 basis points, “in line with its determination to ensure the timely return of inflation to the 2% medium-term target.”

Lagarde explains that the ECB’s governing council is monitoring current market tensions closely and stands ready to respond as necessary to preserve price stability, as covered earlier.

Price stability concerns clearly trump any financial stability worries at the European Central Bank – at least for the time being, says Carsten Brzeski, economist at ING.

Brzeski writes that since the financial crisis in 2007 and 2008, financial markets have got used to the idea that central banks will always play the lender of last resort [as Bagehot wrote many years ago….]

But, Brzeski says, high inflation makes it harder for central banks to play a fire-fighting role:

In a European context, be it a financial crisis, a euro crisis or a pandemic, the ECB has always been there to help. “Whatever it takes”, if needed. However, the big difference between the last 15 years and now is that there is a severe inflation problem.

The ECB cannot simply return to its role of firefighter as it has to fight inflation. The fact that balancing between financial stability and price stability can be quite a conflict of interest for the ECB has already been clear since European bank supervision, in the wake of the euro crisis, was moved to the ECB.

It shouldn’t be a surprise to anyone that the most aggressive monetary policy tightening since the start of the eurozone in 1999 has and will have adverse effects, Brzeski adds:

What markets and central bankers are currently experiencing is actually what undergraduate students learn at college in their first year of studying economics: monetary policy has an impact on the economy.

The last few days have been a good reminder to the ECB that the next steps in fighting inflation will be much harder than the steps taken so far. The first phase of exiting the so-called unconventional measures (negative interest rates and bond purchases) went relatively smoothly, but now that interest rates are in restrictive territory, every additional rate hike increases the risk of breaking something. As a result, we expect the ECB to turn more dovish today and in the coming weeks, probably hinting at a slowdown in the pace and size of any further rate hikes.

Economist Mohamed El-Erian, advisor to Allianz, says the ECB has set aside financial stability concerns by sticking with its plan to raise interest rate by half a percent today.

Following today’s move, the European Central Bank’s main refinancing operations rate has gone up to 3.5%, from 3%.

The rate on its marginal lending facility, which is charged to eurozone banks who borrow overnight from the ECB, rises to 3.75%.

Its deposit facility, which is paid on eurozone bank deposits left at the ECB, will be increased to 3.00%.

Updated

The European Central Bank also says that it ‘stands ready’ to tale action to protect the eurozone banking system.

In a nod to the turmoil in the financial system this week, the ECB’s governing council says:

The Governing Council is monitoring current market tensions closely and stands ready to respond as necessary to preserve price stability and financial stability in the euro area. The euro area banking sector is resilient, with strong capital and liquidity positions.

In any case, the ECB’s policy toolkit is fully equipped to provide liquidity support to the euro area financial system if needed and to preserve the smooth transmission of monetary policy.

ECB raises eurozone interest rates by 50bp despite turmoil

Newsflash: The European Central Bank has pressed on with its plan to raise interest rates by half a percent, despite the turmoil in the banking sector.

The ECB’s governing council has voted today to increase its three benchmark interest rates by 50 basis points – as it had pre-committed to at its previous meeting in February.

This means the ECB’s main interest rate rises to 3.5%, from 3%.

That is a surprise for markets, though, as some investors and economist had expected the ECB to rethink whether such a large increase in borrowing costs was wise in the current situation.

However, the ECB has decided to press on in its fight against inflation.

It says:

Inflation is projected to remain too high for too long. Therefore, the Governing Council today decided to increase the three key ECB interest rates by 50 basis points, in line with its determination to ensure the timely return of inflation to the 2% medium-term target.

The elevated level of uncertainty reinforces the importance of a data-dependent approach to the Governing Council’s policy rate decisions, which will be determined by its assessment of the inflation outlook in light of the incoming economic and financial data, the dynamics of underlying inflation, and the strength of monetary policy transmission.

Updated

The European Central Bank is the first major central bank to meet since financial stability concerns escalated, points out Stephen Innes, managing partner at SPI Asset Management.

So, today’s ECB decision could be a foreshadowing of the US Federal Reserve’s meeting next week, where the Fed must decide whether to press on with its interest rate increases.

Innes says:

While many prominent house economists maintain their baseline for a 50bp [hike by the ECB], many traders think a pause is more likely than a 25bp hike. Compared to most policy decision days, central banks now have a larger relevant information set than investors.

While macro data is equally available for central banks and market participants, central banks have better visibility into micro bank side data, which matters most currently. As a result, there are several risks around today’s ECB meeting depending on the combination of the decision and President Lagarde’s tone in the press conference

Switzerland’s second largest political party is demanding for more transparency around how Credit Suisse’s crisis came about, and pushing for those responsible to be held accountable.

Cederic Wermuth, the co-president of the Social Democrats at a conference (via Reuters)

“We could have seen this coming.

“We demand that those responsible really be held accountable.”

The Social Democrats back the Swiss National Bank’s decision to step in, but said it wants the public sector to be compensated for the risk.

As things stand, Credit Suisse hasn’t yet accessed the 50bn Swiss franc loan available from the SNB, but has said it intents to exercise its option to do so.

Updated

U.S. Treasury Secretary Janet Yellen will tell the Senate Finance Committee later today that the US banking system remains sound, and that Americans can feel confident that their deposits will be there when needed.

Yellen is due to testify to the committee at a budget hearing.

Her prepared testimony, released this morning, shows she’ll explain that the government took “decisive and forceful” actions this week to shore up public confidence in the banking system after the collapse of Silicon Valley Bank

Yellen will say:

“I can reassure the members of the committee that our banking system remains sound, and that Americans can feel confident that their deposits will be there when they need them.

“This week’s actions demonstrate our resolute commitment to ensure that depositors’ savings remain safe.”

The European Central Bank is facing a dilemma over whether to push ahead with its plans for a large interest rise today amid fears over the strength of the banking system after Wednesday’s heavy sell-off of the Swiss banking firm Credit Suisse, my colleague Richard Partington writes.

After raising interest rates since last summer at a record pace to tackle high inflation across the eurozone, the ECB had in effect committed to another 0.5 percentage point increase in borrowing costs this week.

However, financial markets have drastically cut back expectations for the central bank to push ahead with the plan. Before the rate decision on Thursday afternoon, trading in markets reflected an almost 50-50 chance that the ECB would go ahead with a 0.5 percentage point rise. Previously it was considered a certainty.

Analysts said the central bank could opt for a smaller 0.25 percentage point rise as concerns over the health of the banking system rippled through markets. It comes after the collapse of Silicon Valley Bank in the US rattled global banking shares earlier this week, stoking fears of a rerun of the 2008 financial crisis, and leading global investors to tear up their expectations for central bank rate increases.

Victoria Scholar, the head of investment at Interactive Investor, said:

“Last week, a 50-basis point hike was almost an inevitability. However, the collapse of SVB and Credit Suisse’s turmoil have seen markets wind back their ECB expectations.

“Financial markets are now pricing in an increased chance of a 25-basis point hike, but whether the SNB’s support for Credit Suisse could embolden the ECB to continue with its hawkish path is yet to be seen.”

Here’s the full story:

We’ll find out in just over an hour which way the ECB has decided to move….

There are still jitters in America’s banking system, following the collapse of three banks in the last week.

Shares in First Republic, the San Francisco-based regional bank, are down around 20% in pre-market trading:

First Republic’s shares have lost almost three quarters of their value in the last week, as the sector was rocked by the collapse of Silicon Valley Bank.

Rob Burgeman, senior investment manager at wealth manager RBC Brewin Dolphin, explains:

“On the face of it, the bailout for Silicon Valley Bank (SVB) essentially being restricted to depositors – with equity and bond holders essentially being thrown to the wolves – does remind people that investing into the banking sector a riskier proposal than it seemed just a few days ago.

“The problems that SVB had were through investing into long-dated securities – very high quality, asset-backed bonds – but not reflecting their correct values, as the bank intended to hold them to redemption. In the rising interest rate environment that we have seen over the last year, some of these bonds were trading substantially below their redemption value.

“The bonds trading below their redemption value was fine, in principle, until a number of deposit withdrawals meant that they had to sell some of these below their book values. This, in turn, created a shortfall on SVB’s regulatory capital requirements, which it then had to try and fill through raising equity or bonds. When this proved impossible, it was game over.

“The US and UK governments have shown themselves willing to take quick and decisive action to prevent contagion. This is great for depositors, but still leaves shareholders in a more exposed position.

Meanwhile in the UK, we remains on track for a “disastrous decade” of stagnant incomes and high taxes, despite cuts to public services.

That’s the Resolution Foundation’s verdict, after analysing yesterday’s budget.

The thinktank, whose stated aim is to improve the standard of living for low- and middle-income families, said typical household disposable incomes were on track to be lower by the end of the forecast in 2027-28 than they were before the pandemic, when inflation is taken into account.

While the chancellor had announced an “impressively broad suite of policies” to encourage more people into work, he was unable to change the course of declining living standards, the Resolution Foundation said.

Here’s the full story:

Chris Whittall, associate editor at IFR, has dug into the pricing of the insurance on Credit Suisse’s bonds (credit default swaps), to show how price have hit record levels this week:

More reassuring words from chancellor Jeremy Hunt:

After two hours trading, Credit Suisse shares are holding most of their early gains – up 23% at just over 2 Swiss francs.

We could be in for another nervous trading session today with high volatility and focus on banks, says Peter Garnry, head of equitystrategy at Saxo.

Saxo say:

Troubled Swiss lender Credit Suisse has been extended a lifeline by the Swiss National Government this morning, but will that move sufficiently calm the banking sector and global markets after the collapse of the US’ SVB touched off a firestorm of negative focus on banks?

Elsewhere, the ECB faces a tough task today after pre-committing to a 50 basis point hike, with the market doubting they will deliver and forward expectations marked lower.

Updated

ABN Amro: Very early signs are that authorities have turned the tide

There are “very early signs” that the measues taken by Swiss authorities to stabililise Credit Suisse are turning the tide, says ABN Amro’s head of bank research, Joost Beaumont.

Beaumont told clients this morning that the banking sector has been in the spotlight again in financial markets, following the failure of two US banks as well as concerns regarding Credit Suisse.

He adds:

  • Credit Suisse issues are mainly related to credibility, as the bank looks solid from a fundamental point of view

  • Very early signs are that the steps taken by Swiss authorities and this morning’s capital injection seem to have turned the tide

  • We see Credit Suisse as a special case, which was also reflected by the fact that spreads of other banks’ bonds widened by less than Credit Suisse

  • We also assess the extent to which European bank are exposed to the risks seen in the US

  • We find that a relatively large part of deposits in Europe are covered by the Deposit Guarantee Scheme

  • European banks also have lower investments as share of total assets, reducing
    risks of changes to asset valuations

  • Overall, recent developments can be seen as a wake-up call for the sector, as it will not be immune for the sharp rise in policy rates

  • We expect pressure on funding costs and larger differentiation between larger and smaller banks

Analysts at Royal Bank of Canada say the Swiss National Bank has “thrown its arms around Credit Suisse”, with the CHf50bn liquidity lifeline.

They told clients this morning:

Markets were relatively stable in the overnight session on CS’ statement that it is to borrow up to CHF50bn from the SNB, along with reassuring words from major shareholder Saudi National Bank, walking back from yesterday’s damaging comments.

The SNB and FINMA issued a joint statement [yesterday] confirming CS’s capital adequacy and liquidity, albeit later than CS would have liked.

That relatively stability followed some remarkably volatile sessions this week. The yield (or interest rate) on US two-year government bonds fell dramatically, as investors slashed their expectations for interest rate increases.

Updated

Despite this morning’s rally, Credit Suisse’s shares are still down almost a quarter so far this year.

They have risen back over 2 Swiss francs this morning, having hit a record lows of CHf1.55 yesterday.

Back in 2007, before the credit crunch, they were worth Chf80.

The problems at Credit Suisse are very different from those that brought down Silicon Valley Bank a few days ago, points out Neil Shearing, group chief economist at Capital Economics.

Shearing adds:

But they serve as a reminder that as interest rates rise, vulnerabilities are lurking in the financial system.

Key areas to monitor are smaller European banks and shadow banks, particularly open-ended funds that might suffer from maturity mismatches.

Updated

Credit Suisse’s largest shareholder, Saudi National Bank, has said the market turmoil in shares of the Swiss lender was “unwarranted”.

Saudi National Bank chairman Ammar Al Khudairy told CNBC this morning that:

If you look at how the entire banking sector has dropped, unfortunately, a lot of people were just looking for excuses.

Yesterday’s selloff kicked off after Al Khudairy said the Saudi National Bank would “absolutely not” raise its stake in Credit Suisse (due to regulatory rules). It currently owns almost 10%.

Updated

The cost of insuring Credit Suisse’s bonds against default is dropping this morning, a sign that the panic that gripped the markets yesterday is easing.

The UK’s FTSE 100 index has opened higher – up 66 points, or 0.9%, to 7,411 – reversing a little of the 3.8% fall yesterday.

Pest control firm Rentokil are the top riser, up 6.4%, after reporting a jump in annual profits, followed by technology grocery firm Ocado (+3.4%), and then Barclays (up 2.8%, after falling 9% yesterday).

Updated

Banking stocks are the top risers on the European stock markets in early trading:

Shares in Credit Suisse surge 32% as markets welcome lifeline

Credit Suisse’s shares have jumped in value, reversing Wednesday’s slump, as investors welcome its plan to seek a lifeline from the Swiss central bank.

Credit Suisse’s shares jumped 32% at the start of trading in Zurich, after announcing it will borrow up to 50bn Swiss francs (£44bn) to boost its liquidity.

Victoria Scholar, head of investment at interactive investor, says the new liquidity lifeline agreed with Swiss authorities overnight “should prevent another Lehman moment”.

Scholar explains:

It has been undergoing a major restructuring, slashing thousands of jobs, shrinking its investment bank and focusing more on wealth management but this has done little to assuage the bears. The events of this week catalysed another major sell-off in the stock, raising concerns about the existential future of the bank, causing a painful ripple effect across broader markets.

Thankfully, there appears to be a lifeline for the beleaguered lender, which should prevent another Lehman moment, much to the relief of markets and Credit Suisse’s investors. The bank which has been around since 1856 has been instrumental in supporting growth of the Swiss economy with the SNB clearly judging that the bank’s systemic important overrides any moral hazard argument.

The collapse of SVB bank coupled with the turmoil at Credit Suisse have created “a perfect storm” for the financial sector which has been in disarray over the past week, Scholar adds:

The Stoxx 600 banks index in Europe has shed more than 14.5% over the past five trading days until Wednesday’s close while Credit Suisse’s losses spiralled. However the sector look poised for a major rebound this morning.

Updated

European bank shares are rallying, with an index of Europe’s bank stocks jumping 3.3% at the start of trading.

Credit Suisse’s decision to borrow up to 50bn Swiss francs from Switzerland’s central bank is “staunching worries about a bigger run on Credit Suisse”, and the impact on other banks around the world, says Susannah Streeter, head of money and markets at Hargreaves Lansdown.

Streeter adds:

For now, the move has restored a little stability to global markets, with the S&P 500 regaining ground, once it appeared the Swiss National Bank was standing by to help.

Nerves are still frayed though and that has been evident during trade in Asia.

Asia-Pacific markets trimmed their losses today, after Credit Suisse announced its plan to strengthen its cash position.

Japan’s Nikkei has closed down 0.8%, having tumbled 2% in early trading before CS’s announcement hit the wires.

Jeremy Hunt welcomes Credit Suisse support, and is following situation closely

Chancellor Jeremy Hunt says he is encouraged by news that Switzerland’s central bank had offered liquidity to Credit Suisse, with up to 50bn Swiss francs of support lined up.

Asked how concerned he was about the situation, Hunt told Sky News television:

Chancellors never comment on what’s happening in the markets.

Obviously, I’m following the situation. The governor of the Bank of England is following it very closely.

I think the news we’ve heard from the Swiss authorities this morning is encouraging, but I won’t say any more than that.

Updated

Credit Suisse shares are expected to rally when trading begins, in about 30 minutes.

They are indicated 21% higher in pre-market trading on the Swiss stock market on Thursday, after the country’s central bank offered to fund the bank with liquidity.

The bank’s stock closed at 1.697 Swiss francs on Wednesday, down 24%, after a tumultuous day.

Updated

Introduction: Credit Suisse turns to Swiss National Bank; ECB rate decision ahead

Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.

With a crisis raging, Credit Suisse has turned to its central bank for support in an attempt to calm fears over its finances.

In a statement overnight, Credit Suisse announced that it would take up to 50bn Swiss francs (£44bn) from the Swiss National Bank in what it called “decisive action” to strengthen its liquidity.

Credit Suisse found itself at the eye of the storm in the banking sector yesterday – shares tumbled 30% at one point – after its largest shareholder said it could not add to its stake in the bank.

That prompted talk with the Swiss National Bank and financial regulator FINMA, who declared last night that the SNB would provide liquidity “if necessary.”

Credit Suisse’s CEO, Ulrich Koerner, said the additional liquidity would support Credit Suisse’s core businesses and clients, saying:

These measures demonstrate decisive action to strengthen Credit Suisse as we continue our strategic transformation to deliver value to our clients and other stakeholders.

We thank the SNB and FINMA as we execute our strategic transformation. My team and I are resolved to move forward rapidly to deliver a simpler and more focused bank built around client needs.

Credit Suisse also announced overnight that it will buy back 3bn Swiss francs worth of its debt, as part of its move to calm investors’ nerves.

Other central banks are also watching the situation. The Guardian understands that staff at the Bank of England are continuing to monitor developments in the financial sector closely.

Yesterday, the head of asset manager BlackRock warned that the collapse of Silicon Valley Bank last weel could just be the start of “a “slow-rolling crisis” in the US financial system with “more seizures and shutdowns coming”.

Fears over the banking sector roiled markets yesterday. Around £75bn was wiped off the UK’s FTSE 100 index, as the blue-chip index slumped by 3.8% – its biggest percentage fall since the first day of the Ukraine war.

Stocks are expected to open higher today, clawing back some of Wednesday’s losses.

Also coming up today

The Credit Suisse crisis looms over the European Central Bank, as it meets to set eurozone interest rates today.

Back in February the ECB pre-committed to a large increase in borrowing costs today, of half a percent (50 basis points) – but that may be less palatable given the turmoil in the markets.

Previous rises in central bank interest rates, and the impact on bond prices, is clearly already causing serious ructions in the banking sector, with three US banks having failed in the last week. So with the markets in such turmoil, the ECB’s governing council may be tempted to hold off on a rate increase, or plump for a smaller quarter-point rise.

After all, the woes of the global banking sector mean that inflation is yesterday’s problem, says IG analyst Tony Sycamore.

Sycamore adds:

And to a certain extent, the past week’s events have done the dirty work of central banks and will dampen inflation. Higher funding costs, tougher regulation, lower margins, and capital raises will restrict the flow of credit to the economy, and both growth and inflation will slow.

The agenda

  • 12.30am GMT: US weekly jobless claims

  • 1.15pm GMT: European Central Bank interest rate decision

  • 1.45pm GMT: European Central Bank press conference

Updated

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