First it was the Silicon Valley Bank (SIVB) fallout, followed by Signature Bank (SBNY). Then Credit Suisse (CS) was bought out at a fire sale price by UBS, in a deal orchestrated by the Swiss National Bank. There’s been a flurry of news surrounding the banking crisis, or turmoil, as some may call it, and as a result there is one term that has made its own resurgence - “moral hazard”. “Moral hazard” is essentially when one entity engages in an activity of elevated or heightened risk, knowing that another party or entity is their safety net. Yahoo Finance’s Brad Smith breaks down what “moral hazard" is in layman’s terms, giving you his very own example of a time he exhibited “moral hazard” - and it’s not what you think.
Swiss financial regulator Finma has defended its decision to wipe out the value of risky additional tier 1 bonds as part of the Credit Suisse rescue deal. The move enraged some bondholders because Credit Suisse shareholders will receive a payout. In a statement on Thursday, Finma said the AT1s “contractually provide that they will be completely written down in a ‘viability event’, in particular if extraordinary government support is granted”, and noted that the bank received emergency loans backed by a government guarantee on March 19.
ZURICH (Reuters) -Switzerland's financial market regulator FINMA defended its decision to impose steep losses on some of Credit Suisse bondholders on Thursday, saying the decision was legally watertight. On Sunday, Switzerland announced a multi-billion franc rescue of Credit Suisse, which will see it taken over by UBS. The decision that prioritised shareholders over AT1 bondholders rattled the $275 billion AT1 bond market, prompting a sharp fall in prices on Monday.