2024-10-15 15:32:00
When Credit Suisse (CS) was on the verge of collapse in March 2023, a restructuring and emergency plan was also on the table under which the scandal-plagued large bank could be liquidated. But the projects remained in the drawer. The Swiss government and authorities considered it too risky to liquidate this systemically important bank. They feared this could trigger a global financial crisis. Therefore, with the help of emergency law and huge state guarantees, they brought CS into the arms of UBS. There has since been discussion about the effectiveness of the existing regulation.
Systemically important Swiss banks must explain every year how they could be restructured or liquidated in the event of a crisis without disrupting important functions such as payment transactions in Switzerland. At the end of 2022 the Swiss Financial Market Supervisory Authority (Finma) certified both Credit Suisse and UBS that their contingency plans were feasible. However, in assessing the resolvability of the remaining UBS, Finma has now determined that “the integration of CS leads to the necessary adjustments to continue to ensure that UBS can be restructured and liquidated”. Finma therefore ordered UBS to review and improve its stabilization and emergency plan. Supervisors initially suspended the evaluation of these plans for 2024, as announced on Tuesday.
When questioned, a UBS spokesperson confirmed that the experience of the CS crisis requires further development of resolution planning. The bank has already started this work. UBS has a sustainable business model and has a loss-absorbing capacity of approximately $200 billion.
Tougher laws against “unique cluster risks”
In particular, Finma complains that UBS’s current resolution strategy envisages the continuation of commercial activities only as part of a reorganization and restructuring of the business model. However, based on the Credit Suisse crisis experience, additional intervention options are needed to prepare for the crisis and strengthen resolution planning. The latter must be further developed and come into force even in the event of a risk of insolvency. It must also be possible to sell the bank in whole or in part and close individual businesses without endangering the stability of the entire system and without using taxpayers’ money.
UBS will have to prepare these options in the coming years; They are consistent with government proposals for better regulation of major banks. However, it is not yet clear to what extent such measures will be implemented. Parliament will deal with the revision of the “too big to fail” rules only when the parliamentary investigation report on the Credit Suisse disaster is available. It is expected to be released later this year.
Since taking office in early April, new Finma director Stefan Walter has been promoting tougher laws to reduce the “unique cluster risk” resulting from the creation of the new banking giant for Switzerland. Walter argues that UBS should create higher capital buffers and insists that Finma be given new tools and greater powers. His men should be able to intervene earlier if there is a risk of imbalance. In his opinion, the suspensive effect of complaints should be eliminated. “It cannot be that a financial institution poses a threat to finance, but first we have to argue about it in court for many years,” Walter said at a recent conference. He also wants to provide more frequent public information when his authority takes measures against individual institutions. Until now, Finma has only been allowed to engage in “naming and shaming”, which has long been a common practice in other countries, in exceptional cases.
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