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Credit Suisse deal halted crisis, Swiss national bank says

Swiss authorities urged UBS to take over its smaller rival after the central bank's plan for Credit Suisse to borrow up to $54 billion last week failed to reassure investors and customers.Ennio Leanza/Associated Press

GENEVA — The Swiss central bank hiked its key interest rate Thursday and insisted that a government-orchestrated takeover of troubled Credit Suisse by rival bank UBS ended the financial turmoil.

In a statement, the Swiss National 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 “put a halt to the crisis.”

“An insolvency of Credit Suisse would have had severe consequences for national and international financial stability and for the Swiss economy,” said Thomas Jordan, chairman of the Swiss central bank’s governing board.

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The hastily arranged, $3.25 billion deal aimed to stem the upheaval in the global financial system after the collapse of two US banks and jitters about long-running troubles at Credit Suisse led shares of Switzerland’s second-largest bank to tank and customers to pull out their money.

Swiss authorities urged UBS to take over its smaller rival after the central bank’s plan for Credit Suisse to borrow up to 50 billion francs ($54 billion) last week failed to reassure investors and customers.

“The extensive liquidity assistance provided the time needed to find a solution to safeguard financial stability,” the central bank said in a statement. “This solution had to be worked out under considerable time pressure in order to be ready before the Asian markets opened this week.”

To support the deal announced late Sunday, the Swiss central bank has said it is providing a loan of up to 100 billion francs and that the government is providing another 100 billion francs of support as a backstop if needed.

The central bank hiked its key interest rate by half a percentage point to counter “renewed increase” in inflation, which has risen since the beginning of the year, to 3.4 percent last month.

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It follows a quarter-point rate hike by the US Federal Reserve on Wednesday and expectations of a rise by the Bank of England on Thursday. The European Central Bank hiked by a half-point last week, with the ECB and Fed chiefs voicing assurances that the financial system is stable.