In wake of Credit Suisse, Switzerland told to better prepare for bank failure
Switzerland was urged to prepare properly for the failure of a big bank on Friday by a group of experts in the wake of the collapse of Credit Suisse, but their report to government skirted radical reform some say is needed.
UBS Group emerged as Switzerland’s single largest bank earlier this year after the government hastily arranged and partly bankrolled its takeover of stricken Credit Suisse to prevent that bank’s collapse.
The failure of one of the world’s biggest banks and a one-time symbol of Swiss financial strength blindsided the country’s officials and regulators, who had long grappled with the lender as it lurched from one scandal to the next.
On Friday, a group of Swiss experts, including bankers and academics, urged the government to improve its readiness should UBS, which is now far larger, run into trouble.
They called for the country’s regulator FINMA to be given more clout with the power to impose fines. They said FINMA should be given more authority to intervene and that there should be improved coordination amongst Swiss authorities.
The experts also recommended that FINMA get closer to banks’ executives before there is a crisis.
The experts also suggested that it should be made easier for banks to tap central bank funding, by loosening the rules on what security can be offered in return.
The recommendations are not binding and may not make it further than their report. The powerful central bank, Swiss National Bank (SNB), said it disagreed with some of the suggestions, including on liquidity and on how the authorities work.
The Credit Suisse takeover – the first rescue of a global bank since the financial crisis of 2008 – grants enormous clout to UBS, ridding it of its main rival.
It will change the landscape of banking in Switzerland, where branches of Credit Suisse and UBS are dotted everywhere, sometimes just metres apart.
The banks, two of the most systemically relevant in global finance, hold combined assets of up to 140% of Swiss gross domestic product in a country heavily dependent on finance for its economy.
The collapse of Credit Suisse has prompted an international debate about reforms introduced after the last financial crash to prevent banks becoming too outsized to wind down – a drive that has since faltered.
Although Switzerland imposed losses on shareholders and some bond investors – one pillar of those crisis reforms – they balked at the prospect of winding up Credit Suisse, opting to sell to UBS instead.
The deal was criticised by some in Switzerland. “UBS got the deal of the century,” said a spokesperson for the Social Democrat party, which is a member of the ruling coalition. “At the same time, the costs of massive job cuts are foisted on the public. We need bank rules with teeth.”
Others also see grave failings.
“Swiss policymakers failed to adequately supervise Credit Suisse throughout the past decade leading to its demise,” said Beat Wittmann, chairman of Porta Advisors, a Swiss boutique advisory firm.
“Unfortunately there is so far no political willingness to learn any lessons,” he said.
Nicolas Veron of the Peterson Institute for International Economics in Washington, cautioned that Switzerland could be stumped if UBS were to run into trouble.
“(The) rescue of Credit Suisse isn’t a perfect success but it’s not a story of policy failure either.
“The Swiss had two options – the merger, plan A, or resolution, plan B, and the judgement call was that a deal was better,” he said, adding that there is no such fallback if UBS runs into trouble.
During the global financial crash of 2008, it was UBS, not Credit Suisse, that needed a state rescue.
At that time, the Swiss central bank lent more than $54 billion to a vehicle that UBS used to offload problem debt, including subprime loans.