Swiss Bail-In Credibility Weakened by Credit Suisse Rescue

On March 19, 2023, Bern approved a CHF 100 billion default guarantee to the Swiss National Bank to keep Credit Suisse afloat with emergency liquidity. This accompanied a CHF 9 billion loss guarantee to UBS for a portfolio of assets that neither bank really wanted.

The riskiest bonds Credit Suisse held, its Additional Tier 1 debt worth around CHF 16 billion, were written down to zero. Meanwhile, bail-in bondholders just above them, which had been designed to absorb losses next, were left untouched.

Investors had factored in losses on both classes before the merger, but then it was one class that imploded and the other snapped back. The CHF 100 billion liquidity facility was drawn and repaid by Credit Suisse by the end of May 2023, while the CHF 9 billion loss guarantee was terminated unused within five months.

The rescue preserved Switzerland's reputation for having safer banks than anywhere else. A seamless handover to a stronger domestic rival backed by public commitments cost little but maintained that image even though it set aside the rulebook meant to govern moments like this.