In the event of a crisis, a systemically important bank needs state liquidity guarantees. The union has known that for years.
CS can obtain a loan of up to CHF 100 billion guaranteed by taxpayers. Citizens and politicians rubbed their eyes as they listened to National Bank President Thomas Jordan at the media conference on UBS’s takeover of CS. After the government rescued UBS in 2008, didn’t the federal government promise that taxpayers would no longer be liable?
Only part of the truth
At the memorable media conference on March 19, Finance Minister Karin Keller-Sutter said the “too big to fail” plan could not have been applied due to the turbulent markets. “That would almost certainly have triggered a global financial crisis.” What she hadn’t said: The “too big to fail” plans weren’t even finished yet.
DOK research shows that it would have taken billions in guarantees from taxpayers to implement the two scenarios of “Too big to fail”: If CS had been restructured and downsized, the bank would have lost its customers because of the bank runs of their customers would have withdrawn deposits would require a lot of additional liquidity. In the second scenario, the CS branches abroad would have been declared bankrupt. Guarantees from the taxpayers would probably have been necessary for this, too, because the banks could not have covered all the secured deposits of the creditors.
The taxpayers as the last safety net
The technical term for the state guarantee is: Public Liquidity Backstop (PLB). Reto Schiltknecht, former head of “Too big to fail” at the Financial Market Authority (Finma) until August 2021 says: “The public liquidity backstop is the last safety net when the bank no longer has any collateral.” The National Bank can only grant the bank a loan if it receives collateral for it. Without collateral from the bank, taxpayers have to guarantee the loan. Only: So far there is no legal basis for these state guarantees.
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The Financial Market Authority (Finma) is being criticized.
Keystone/Archive/PETER KLAUNZER
When CS was taken over, the PLB had to be introduced by emergency law. The Federal Department of Finance (FDF) under the then Federal Councilor Ueli Maurer delayed the introduction of the law, says ex-Finma man Schiltknecht: “We’ve had the English and Americans breathing down our necks since 2017”. The PLB is the international standard in the event of a banking crisis. For Schiltknecht it is clear why the Federal Department of Finance left the bill untouched: “People had respect for the discussion in Parliament that the taxpayer might have to be asked to pay again”.
In an emergency rather emergency law
After a Federal Council meeting in March 2022 to introduce the PLB, the then Finance Minister Ueli Maurer did not speed up the consultation draft because of CS’s liquidity situation, explained his successor Karin Keller-Sutter. “We didn’t want to unsettle us,” said Keller-Sutter at the media conference. And continued disarmingly openly: They had agreed with the Federal Office of Justice: “If we should actually need the PLB, it would be possible to make use of emergency law”.
Better to use emergency law than to pour clean wine on Parliament? The Federal Department of Finance answers technically: As a prerequisite for the “political acceptance of such a strong government measure”, the Federal Council examined in 2019 whether the banks had to build up more liquidity in the event of a crisis. The new Liquidity Ordinance did not come into force until three years later. In turn, the FDF gives the banks 18 months to increase their liquidity by January 2024. The consultation for the bill for liquidity guarantees from the state will only begin in the second half of the year.
Reto Schiltknecht, the former person responsible for “too big to fail” at Finma, speaks plainly: “In retrospect, the impression that thanks to regulation there is no longer any need for help from the state is fatal”. He says self-critically that the financial market supervisory authority should have communicated the risks more proactively. It is a Herculean task to implement the “too big to fail” rules that apply worldwide.
The end of an era: Credit Suisse will be swallowed up by UBS on March 19, 2023. In 1856 the Schweizerische Kreditanstalt was founded, which later became Credit Suisse. Now she is history. «SRF DOK” shows the background of this historic event at 8:05 p.m. on SRF 1.