‘Credit Suisse too big to be saved, bad things can happen,’ warns Nouriel Roubini, who predicted 2008 financial crisis

Swiss lender Credit Suisse Group AG could be too big to be saved and bad things can happen if it does not get capital in time, top economist Nouriel Roubini warned on Wednesday.  

Credit Suisse, the second largest bank in Switzerland, is staring at an uncertain future as its stocks have fallen to a record low. While stocks may not be the correct proxy for a bank's health, the steep fall may unnerve the investors and its clients leading to bank run.

Also read: Credit Suisse to borrow up to $54 bln as it seeks to calm investor fears

Roubini, who was among the first few to predict the 2008 financial crisis, on Wednesday told Bloomberg: "The problem is that Credit Suisse, by some standards, might be too big to fail, but also too big to be saved." He said it was not clear that, unlike the US, the bank's regulators had the resources to engineer a bailout.

The economist, who teaches at Stern School of Business of New York University, said Credit Suisse faces a risk of failure. "The question is whether they (regulators) get the capital or not," Roubini said. "Otherwise, bad things can happen."

Also read: Wall Street down as Credit Suisse sparks fresh bank selloff

The Swiss lender has seen massive withdrawals in cash from depositors since the last quarter of 2022. As per reports, the bank saw an outflow of more than 110 billion Swiss Francs (or 113 billion Euros). The bank's shares crashed over 24 per cent on Wednesday, hours after its top investor - Saudi National Bank (SNB) - said it won't invest any more capital into the Swiss lender.

Also read: 'Credit Suisse’s problem is that it does not have a business': Raghuram Rajan on Swiss lender's dire situation

SNB chairman Ammar Al Khudairy said his bank currently owns 9.8 per cent of Credit Suisse. "(And) If we go above 10 per cent, all kinds of new rules kick in whether it be our regulator or the European regulator or the Swiss regulator," Khudairy said, adding that SNB was not inclined to get into a new regulatory regime.

Former RBI Governor Raghuram Rajan on Wednesday said that Credit Suisse’s problem was that it did not have a business. Over the last few years, he said, Credit Suisse has participated in almost every scandal that has come to light. "There is a turnaround underway at Credit Suisse, but it needs investments," Rajan said in an interview with CNBC-TV18, referring to the string of scandals the bank faced in the last few months.

Rajan, who served as RBI Governor from 2013 to 2016, appeared positive about the European banking system as a whole. He said other European banks did not have the same problem as Credit Suisse. "House prices may have stabilised but with supplies being low, people are not selling. Fed may not be too rattled if the market falls by another 10 per cent," he said.

(With inputs from agencies)