Home » After the CS collapse – are the “too big to fail” rules also a case for restructuring? – News

After the CS collapse – are the “too big to fail” rules also a case for restructuring? – News

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After the CS collapse – are the “too big to fail” rules also a case for restructuring?  – News

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Credit Suisse is history – Switzerland only has one major bank left, UBS. It’s no bigger than it was before the 2008 financial crisis. But it is the last big bank in Switzerland. If UBS got into trouble, there would be no other Swiss bank that could take it over. They would have to be dropped and wound up – or nationalized or sold off to a major foreign bank. The collapse of the only remaining major bank, UBS, would cause enormous damage to the Swiss economy.

For this reason, after the CS disaster, the Federal Council set up a group of experts on “banking stability”. She examined to what extent the existing rules in Switzerland are sufficient for systemically important big banks and where there are gaps.

Finma should be strengthened

The expert group has now published its recommendations. The focus is on the financial market supervisory authority Finma. It is to be equipped with more extensive powers – similar to the powers that foreign supervisory authorities have. Among other things, FINMA should be able to order organizational changes at big banks ahead of time in order to make a bank capable of restructuring at an early stage.

This also includes requiring a big bank to deposit more collateral with the SNB ahead of time – i.e. before it is in trouble. This gives a bank more liquidity. For its part, the SNB should accept more financial instruments as collateral to make it easier for a bank to obtain more liquidity before it runs into problems.

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Call things by their names

Finma should also be able to inform the public about measures ordered earlier and more transparently – call a spade a spade. This “naming and shaming” is commonplace abroad. This can put pressure on the management of a bank. This is particularly important when management – as happened at CS – is recalcitrant and does not immediately follow Finma’s orders.

The Commission also proposes to be able to issue fines – as Finma, to banks and to bank bosses personally. The English supervisor, for example, can hand out personal fines. If the former CS bosses had been confronted with a personal million fine from Finma at an early stage, they might have taken their responsibility better.

«Supervisory authorities abroad were surprised by the solution»

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Caption: Yvan Lengwiler is Professor of Economics and President of the Bank Stability Expert Group. ZVG / UNIVERSITY OF BASEL

On March 19, the takeover of CS by UBS was announced. A lightning takeover, an emergency rescue. With this solution, a dangerous situation was quickly defused, says Yvan Lengwiler, head of the “Bank Stability” expert group. However, another solution was also prepared. The CS should be so-called liquidated, split up, with parts that go bankrupt: “The foreign supervisory authorities were all involved in the preparation of this liquidation,” explains the economics professor in the «Daily talk of Radio SRF».

“They knew how this was going to happen. Finma prepared this very well, talks had been going on for several weeks, everything was ‘sur place’ to do it. So it was a big surprise that you didn’t do it, some were even a little disappointed. It would have been proof that this system works,” says Lengwiler. Abroad there are now doubts as to whether Switzerland is prepared to do such a transaction. “This impression must be corrected. Otherwise there is a systemically important bank in Switzerland that is not supervised according to international standards, a bank that has an implicit state guarantee. »

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The expert group also emphasizes how important early cooperation and communication between Finma, the SNB and the Department of Finance is during a crisis. In the case of CS, however, this communication worked well, otherwise the emergency takeover over the historic weekend in March would not have been possible.

A detailed analysis is required

Ultimately, the recommendations are intended to help prevent possible difficulties for the last major Swiss bank, UBS, in the future. It was difficult for the group of experts to assess the extent to which the current “too big to fail” rules are sufficient, because CS was not “wound up” as stipulated in the rules, but was taken over by its competitor UBS.

In this respect, it was not possible for the expert group to say with certainty whether the current rules for the resolution of a systemically important bank are sufficient or not. For this reason, she recommends that Finma, the SNB and the Department of Finance jointly explain in detail why the decision was made not to wind up CS. Only with such a detailed analysis can a comprehensive assessment be made of where improvements need to be made to the “too big to fail” rules.

Charlotte Jacquemart

Business Editor, SRF

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Charlotte Jacquemart studied economics at the University of Zurich and has been working as a business editor at Radio SRF since June 2017. Before that, she worked for the “NZZ am Sonntag” for 13 years.

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