Bank regulation is an issue that the newly elected federal parliament must address. Because in the aftermath of the CS debacle, there will be a lot of work – for months to come – and not just for the Parliamentary Investigative Commission (PUK). What would happen if one day Switzerland’s only remaining major bank were to fail? Business editor Jan Baumann has answers.
Jan Baumann
Head of economics department at Radio SRF
Open the people box. Close the people box
Jan Baumann has been working at SRF since 2013 and has headed Radio SRF’s business department since the beginning of 2023. He previously worked as an editor for the newspaper “Finanz und Wirtschaft” for around ten years, including as a USA correspondent.
When is a bank systemically important, i.e. “too big to fail” (TBTF)?
A bank is systemically important if its uncontrolled collapse would cause enormous damage to the general public. The international financial crisis of 2008 showed that such bank failures can have serious consequences for the economy. There is also the risk that there will be a conflagration in the international financial system.
Do systemically important banks automatically have a state guarantee?
No, officially only most cantonal banks in Switzerland have a (cantonal) state guarantee. It is controversial whether systemically important banks have an implicit – i.e. unspoken – state guarantee. The answer depends, among other things, on how the state would behave in the event of a crisis. UBS/CS as well as Raiffeisen, Postfinance and Zürcher Kantonalbank are considered systemically important.
Legend: It is controversial whether systemically important banks, such as UBS, have a state guarantee. Reuters/Arnd Wiegmann
How does the crisis regime (TBTF rules) work for big banks?
The state intervenes when a systemically important bank threatens to collapse. The Financial Market Authority takes the lead. To put it simply, the supervisory authority allows the bank to be restructured at the expense of the investors, i.e. without risking billions in taxes. Certain of the bank’s debts are also converted into equity capital (share capital) so that the bank has enough money of its own.
In technical jargon this is referred to as the resolution of a bank. The focus is on restructuring those banking activities that are particularly important for the economy as a whole: for example, payment transactions. Parts of the bank could also be shut down.
If necessary, could the state allow any bank to fail, no matter how big it is?
That is uncertain. According to the requirements of the “too big to fail” regime (TBTF regulations), this should in principle be possible. The extent to which the crisis regime could be implemented in practice in an emergency at a globally systemically important bank like UBS is currently being discussed in expert circles and at the political level.
Who is concerned with bank stability?
The guardians of financial stability in Switzerland are the Swiss National Bank, SNB, and the financial market supervisory authority, Finma. The Swiss National Bank (SNB) publishes one every year Financial Stability Report of the banks. Finma introduces Dossier on the TBTF question. The report discusses the need for reform after the collapse of Credit Suisse “Bank Stability” Expert Group from September 2023. This Financial Stability Board (FSB) and the Bank for International Settlements (BIS) also published reports on the topic in October.