2023-09-01 20:57:30
After the takeover of Credit Suisse, UBS is on its own. If one day it also stumbles, there will be no other major Swiss bank that could step in to save the day. The new banking colossus is simply too huge for that. Its balance sheet total is twice as large as Switzerland’s gross domestic product. UBS therefore represents a huge concentration of risk for the small country. “It is therefore particularly important that the process for winding up a systemically important major bank really works,” says Yvan Lengwiler in an interview with the FAZ. The professor of economics at the University of Basel is a Specialist in financial market regulation and President of the “Banking Stability” expert group, which was commissioned by the Swiss Ministry of Finance to consider how the regulation of large banks can be improved after the near-collapse of Credit Suisse and the rescue maneuver orchestrated by the government in Bern.
The result is a 96-page report entitled “Need for reform after the collapse of Credit Suisse”, which Lengwiler and his seven colleagues from science and practice presented on Friday. The part of the “too big to fail” regulation (TBTF), which was actually supposed to make it possible to restructure a ailing major bank without state support or to wind it down in an orderly manner, did not come about in the case of Credit Suisse for fear of execution and contagion risks to application. However, the group of professionals came to the conclusion that it was very likely that Credit Suisse could have been wound up according to the existing plans. “The preparatory work for this was excellent,” says Lengwiler. Nevertheless, the group now sees a need for all sorts of reforms in the TBTF regulation.
Credit Suisse met regulatory liquidity and capital adequacy requirements until shortly before it ended. “However, the key figures from the market spoke a completely different language,” says Lengwiler with a view to the crash in the share price and ratings, the skyrocketing of default risk prices and the digital “bank run” of customers. “Therefore, the financial market supervisory authority Finma should be given much more opportunity to rely on this forward-looking market information if it is to intervene.” In this way, protective measures could be initiated before there is a risk of insolvency.
investigative procedures without effect
In its report, the group of experts recalled that Finma had conducted eleven investigations against Credit Suisse in the past few years. However, the bank did not adjust its behavior in such a way that customer and market confidence was restored. The experts therefore recommend giving Finma stricter supervisory and sanctioning instruments. For example, it should be allowed to publicly announce from now on when it initiates so-called enforcement proceedings due to serious violations of regulatory provisions. Such “naming and shaming” – which has long been common practice in other countries – has an educational character and is easy to put into practice, explains Lengwiler.
The duration of the procedures should also be shortened. Practice shows that it can take several years for a Finma ruling to become legally binding. This is particularly problematic when it comes to disposing of the capital or liquidity requirements of systemically important banks. A quick decision is called for here in particular in order to ensure the stability of the bank concerned or even of the banking system and the economy as a whole.
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