The case of CS shows that all attempts to make the banks crisis-proof have so far failed. Good recipes are in demand.
Separate banking system, more equity, bonus bans: There was no shortage of proposals for stronger regulation of the financial center at the extraordinary session on the CS takeover. But which measures actually have an effect? What is the fastest to implement? And can crises actually be “regulated away” by politics? Andi Lüscher discussed this with his guests in “Eco Talk”.
Can we still afford big banks? Nina Reiser, a private lecturer in private and commercial law at the University of Zurich, believes that the question was wrong: “We had no other choice, Credit Suisse had to be saved.” Now it’s a matter of working through possible errors.
The main problem is not the size of a bank, adds Jürg Müller, head of research “Infrastructure & Markets” at Avenir Suisse. It must be possible to wind up such institutes. “Too big to fail failed miserably,” emphasizes Müller. “If we have to save banks with emergency law, we have a problem with our liberal market organization.”
Can bonus restrictions help? The bonus question is important for socio-political reasons. If high bonuses are paid out in the event of huge losses, society will not accept it, says Serge Gaillard, former director of the Federal Finance Administration. “It needs a wage ceiling, without it it doesn’t work.”
Avenir Suisse research director Müller denies this: “The bonus question is not central to getting the problem under control.” Systemically important banks that are listed on the stock exchange should, as private companies, be able to set wages themselves. But since the importance of the banks for the state is so important, wages and bonuses are always an issue and that is wrong, says Müller. “The federal government can set benchmarks for compensation issues, which is regulated by law,” contradicts Reiser and adds: “The federal government must take compensation measures. How to regulate that in terms of legal policy is another question”.
Should the Financial Market Authority (Finma) be able to distribute fines? “Ultimately, Finma, unlike the competition authority, lacks the legal basis to distribute fines,” says Reiser. “We should try to make the whole system more stable and not criminalize it,” said Müller. Buses didn’t make the system any better.
Do banks need more capital? “The more equity, the more stable, that’s the way it is,” says Gaillard. But the point is that there is no regulation that would prevent a financial crisis, says the former director of the federal financial administration. “The problem is that it is systemic risks that are taken that then trigger contagion effects,” explains Müller. The whole system is too networked.
“Looking at equity doesn’t go far enough,” says Reiser. “It’s not just about equity, we have a crisis of confidence.” You have to ask yourself why there was a crisis of confidence in the first place. At best, it would help if very specific responsibilities were assigned to managers in Switzerland, as is the case in Great Britain. “You can’t prevent a crisis with it,” says Reiser, “but it might help to deal with one better”.