Home » Lagarde vows to protect banking system from turmoil after $54bn lifeline for Credit Suisse

Lagarde vows to protect banking system from turmoil after $54bn lifeline for Credit Suisse

Christine Lagarde has said the European Central Bank “stands ready” to provide emergency support to eurozone lenders after Credit Suisse was forced to seek help.

Ms Lagarde said the ECB was “monitoring current market tensions closely” but said Europe’s banks were in a far better position than during the financial crisis.

She told a news conference: “I think that the banking sector is currently in a much, much stronger position than where it was back in 2008.”

The comments came as the ECB pushed ahead with a 0.5 percentage point increase in eurozone interest rates, taking borrowing costs across the bloc to their highest level since 2008.

Credit Suisse was forced to announce plans to borrow up to $54bn from the Swiss Central Bank late on Wednesday night after a sharp fall in its share price and amid broader concerns about the global banking sector.

The crisis prompted speculation that the ECB could pull back from another large interest rate on Thursday. However, Ms Lagarde, president of the ECB, said the central bank had to prioritise fighting inflation.

Ms Lagarde: “We have to do our job. Let me reassure you, we are determined to fight inflation and return it to 2pc and we will take the measures that are necessary.”

Banks have come under pressure around the world after the collapse of Silicon Valley Bank (SVB) in the US last week, which has triggered broader concerns about stability.

Ms Lagarde said: “We are monitoring current market tensions closely and stand 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.”

Thursday’s rate increase lifted the eurozone’s benchmark deposit rate to 3pc. Ms Lagarde said the increase was necessary to tame inflation in the eurozone, which is currently running at 8.5pc.

Policymakers held off from providing any guidance on where rates would go next, suggesting another rate hike is not certain.

Increasing distress among banks makes it harder for central banks to raise borrowing costs over fears of unintended damage to the financial system.

The ECB’s announcement came as shares in Credit Suisse’s share price rebounded by nearly a fifth after the bank announced in the early hours of the morning that it would tap the Swiss central bank for a $54bn (£45bn) lifeline.

Despite alleviating immediate concerns about its finances, experts still raised questions about the long-term future of the bank.

Kian Abouhossein, an analyst at JP Morgan, said the “status quo was no longer an option” following Credit Suisse’s turbulent week, adding that a takeover by rival UBS was now the most likely outcome.

Global markets rallied on Thursday, with the FTSE 100 and S&P 500 both climbing around 1pc.