The Swiss Financial Market Supervisory Authority Finma has a key role in the emergency takeover of CS by UBS. The annual report hardly gives any answers.
The past year has exposed the financial world to massive stress: Ukraine war, energy crisis, inflation, rapidly rising interest rates. Together they made a toxic mixture. The list of risks that the supervisory authority for banks and insurance companies deals with in the most recent annual report is correspondingly long.
Here are a few examples: How vulnerable are banks’ mortgage loans if interest rates rise? How well does the fight against money laundering work? How strictly do the financial institutions adhere to the sanctions against Russia? How well do they parry cyberattacks, which are becoming more common?
Risk control: Weaknesses also at UBS
There are also various investigations into scandals and misconduct, namely by the big banks Credit Suisse and UBS; for example when the speculative vehicle Archegos collapsed.
The financial market supervisory authority writes unflatteringly that weaknesses in risk control have also been shown at UBS and not only at Credit Suisse. And again it comes up that CS received a serious reprimand for its far too risky business with the failed Greensill fund.
Nothing alarming about the stability of the CS
The sections on financial stability are different, which seem almost trivializing: CS and UBS are relatively well prepared for a crisis. In other words: Thanks to the “too big to fail” regulation, the big banks could – theoretically – continue to perform their core functions for the Swiss economy even in a crisis without the state having to bail out the banks. However, according to the report, the two financial giants with their precautions for such a crisis are not quite there.
On this point – the crisis suitability of the big banks – there are now a bunch of questions for Finma. Questions that the authority apparently did not want to answer all today. That’s why – after the dramatic failure of CS – she canceled the annual media conference at short notice.
Three questions about the Finma Annual Report 2022
SRF News: There is nothing alarming about the stability of CS in the annual report. Did Finma look too little?
SRF business editor Jan Baumann: I wouldn’t say that. After the announcement of the CS emergency sale, we know that Finma has done some things discreetly in the background. But she didn’t report all of that in the annual report. In its analysis of crisis suitability according to “Too big to fail”, it had to concede that CS met the security requirements, at least on paper.
In hindsight, however, one can say that there were alarm signals?
Yes, there were. They could be heard loud and clear by autumn at the latest, when the crisis of confidence broke out and customers withdrew en masse from the bank. A crisis team at Finma dealt with the massive problems. One thing is clear: it is not the supervisory authority that is responsible for the failure of CS, but primarily the bank’s management.
Finma decided not to hold a media conference. Is that smart in the period of trust building?
It’s not ideal. But the top of Finma is now giving interviews all the time. What she says today about the CS debacle does not belong in the retrospective annual report. The burning questions concern future regulation and supervision, which is where the debate is only just beginning.