From Crisis to Scandal: How Credit Suisse Weathered a Bank Run but Ultimately Fell

From Crisis to Scandal: How Credit Suisse Survived a Bank Run but Ultimately Fell

To understand Credit Suisse's recent collapse, we need to first unpack what a “bank run” actually is, and why it’s every banker’s worst nightmare. Think back to the 2008 financial crisis. Banks like Lehman Brothers collapsed because they ran out of liquidity, or cash, to meet withdrawal requests. A bank run happens when customers lose confidence and rush to withdraw their deposits all at once, fearing the institution will fail. Banks, which typically keep only a fraction of deposits in liquid cash, often can’t keep up.

Credit Suisse, a pillar of Swiss banking for over 167 years, faced a similar doomsday scenario in 2023. After years of scandals and financial missteps, clients began pulling their money en masse, over $100 billion in just one quarter. To put that in perspective, it’s like draining the annual GDP of Morocco from one bank in mere weeks. The Swiss National Bank intervened with a $54 billion lifeline to stabilize the situation, temporarily halting the outflow. But while the immediate panic subsided, the damage was done.

The Ripple Effect of Scandals

How did a bank that survived global recessions and wars fall so low? Much of it boils down to trust, or the lack of it. Over the years, Credit Suisse was embroiled in controversies that ranged from money laundering and spying on its executives to risky investments that backfired. One of its most high-profile missteps was its involvement with Greensill Capital and Archegos Capital Management, two financial firms whose implosions in 2021 cost Credit Suisse billions in losses.

Scandals like these don’t just hurt the bottom line; they erode public and investor confidence. And confidence is the cornerstone of banking. Economist Paul Krugman once said, “The banking business is based on trust, and when that trust is gone, nothing else matters.”

The broader problem Credit Suisse faced wasn’t just scandal fatigue; it was liquidity, or the lack thereof. Banks operate on the principle of fractional reserves, meaning they only keep a small percentage of deposits as cash on hand. The rest is loaned out or invested. When depositors lose faith and demand their money back all at once, the system cracks.

This was evident during the 2008 financial crisis when banks holding risky mortgage-backed securities found themselves unable to sell those assets fast enough to cover withdrawals. Credit Suisse’s modern woes echo that crisis. Although it didn’t deal with subprime mortgages, its risky bets and scandal-ridden history created a similar liquidity squeeze.

Even after surviving the bank run, Credit Suisse couldn’t recover its footing. By 2024, it was grappling with new accusations, including mishandling sensitive client data. Regulators stepped in, but public trust had already evaporated. According to a Gallup poll from 2022, only 32% of Americans trusted financial institutions, a figure likely mirrored globally. For Credit Suisse, already battered by years of mismanagement, this was the final nail in the coffin.

Lessons Learned?

The fall of Credit Suisse is a cautionary tale for the banking world. It shows that surviving a crisis isn’t enough if systemic issues remain unaddressed. Banks can’t run on fumes of past prestige; they need transparency, sound risk management, and most importantly, trust.

In hindsight, Credit Suisse’s collapse was less a sudden failure and more a slow-motion train wreck. It’s a stark reminder that even the most iconic institutions can crumble when trust, the lifeblood of banking, dries up.

As the dust settles, one question remains: will the financial industry learn from this, or is history doomed to repeat itself? If 2008 taught us anything, it’s that the next crisis is never too far away.

Credit - Getty images