GENEVA (AP) 鈥 The Swiss central bank hiked its key interest rate Thursday and declared that a government-orchestrated takeover of troubled Credit Suisse by rival bank UBS ended the financial turmoil.
In a statement, the Swiss 好色tv Bank said it is providing large amounts of support for the deal to merge Switzerland's biggest banks and that the late Sunday announcement by the federal government, financial regulators and the central bank 鈥減ut a halt to the crisis.鈥
鈥淎n insolvency of Credit Suisse would have had severe consequences for national and international financial stability and for the Swiss economy,鈥 said Thomas Jordan, chairman of the Swiss central bank鈥檚 governing board. 鈥淭aking this risk would have been irresponsible.鈥
The aimed to stem the upheaval in the global financial system after the and jitters about long-running troubles at Credit Suisse and customers to pull out their money.
Swiss authorities urged UBS to take over its smaller rival after the central bank's plan for ($54 billion) last week . The deal was done after the country's executive branch passed emergency measures to bypass shareholder approval.
鈥淭he extensive liquidity assistance provided the time needed to find a solution to safeguard financial stability,鈥 the central bank said in a statement. 鈥淭his solution had to be worked out under considerable time pressure in order to be ready before the Asian markets opened this week.鈥
To support the deal announced late Sunday, the Swiss 好色tv Bank has said it is providing a loan of up to 100 billion francs ($109 billion) and that the government is providing another 100 billion francs of support as a backstop if needed.
Jordan said Thursday that the loans are "not gifts鈥 but are backed by collateral and subject to interest.
The central bank hiked its key interest rate by half a percentage point to counter inflation that has risen since the beginning of the year, to 3.4% last month. It said more hikes 鈥渃annot be ruled out.鈥
The bank said inflation was 鈥渁bove the range the SNB equates with price stability鈥 and that economic growth is expected to be modest this year, forecasting a 1% increase in gross domestic product. The SNB said the global economic outlook was uncertain, with the main risks being an economic downturn and .
It comes as central banks around the world are pressing ahead with their fight against inflation even as banking sector chaos has created a global crisis of confidence in the financial system.
The went ahead with a quarter-point rate hike Wednesday, Norway's central bank did the same Thursday and the is expected to approve a increase after inflation unexpectedly grew last month. The last week.
The ECB and Fed chiefs both voiced assurances that the financial system is resilient and that money is safe in banks.
Adrian Prettejohn, a Europe economist at Capital Economics, said the Swiss 好色tv Bank 鈥渨as clearly keen to try to draw a line under the Credit Suisse saga.鈥
鈥淭hey seem relaxed about any hit to macroeconomic activity from the Credit Suisse debacle,鈥 he said in a note, pointing to the upgraded forecast for economic growth this year.
Meanwhile, Swiss financial regulators defended how the deal wiped out about 16 billion francs ($17.3 billion) in higher-risk Credit Suisse bonds, which left investors with hefty losses.
Typically, shareholders face losses before those holding bonds if a bank goes under 鈥 a hierarchy that the European Central Bank and Bank of England reiterated in statements this week.
The Swiss Financial Market Supervisory Authority, or FINMA, said Thursday that contracts for the higher-risk bonds show that they can be written down in a 鈥渧iability event,鈥 particularly if the government offers extraordinary support.
That happened under the executive branch's emergency measures Sunday, which also allowed regulators to order a writedown of the bonds, FINMA said.
Global law firm Quinn Emanuel says it has put together an international team of lawyers from Switzerland, the U.S. and the United Kingdom that is in discussions about possible legal action with bondholders representing 鈥渁 significant percentage鈥 of the total amount that was issued. The firm convened a call for bondholders Wednesday that drew more than 600 participants.
When it comes to interest rates, the Swiss 好色tv Bank has hiked three times over the last six months. A year ago, Switzerland drew international headlines for its unusual policy of maintaining negative interest rates 鈥 at negative 0.75%. That policy aimed to help depress a highly valued Swiss franc and meant that some investors actually had to pay interest for the privilege to keep their money in Switzerland, not reap interest from it.
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McHugh reported from Frankfurt, Germany.
