Need for reforms following Credit Suisse takeover

In its report published on 1 September 2023, the group of experts on banking stability outlines the need for reforms following the takeover of Credit Suisse by UBS. In line with its mandate, it focuses on “strategic considerations independent of the authorities on the role of banks and state frameworks in the context of the Swiss financial centre’s stability” (page 2). Accordingly, it offers recommendations or ideas for discussion regarding potential improvements to banking regulation and in particular the Federal Council’s ongoing evaluation of the “too big to fail” regime.

The group of experts rightly stresses the macroeconomic significance of systemically important banks and the financial centre as a whole and notes that the government-supported takeover of Credit Suisse by UBS represents a key contribution to international financial stability.

The report agrees with our own analysis in its conclusion that the existing “too big to fail” regulations definitely helped, for example by providing a solid basis for the banks involved in terms of capital and liquidity. The group of experts also believes that “no regulation can rule out a crisis with complete certainty” (page 18). With this in mind, it attaches great importance to crisis management and improving the tools available for it.

The SBA welcomes, among other things, the experts’ recommendations on liquidity and how it can be made available to banks by the Swiss National Bank (SNB) and the federal government. One such recommendation concerns extending the universe of assets the SNB accepts as collateral in connection with its emergency liquidity assistance (ELA). The stigma associated with applying for ELA must also be addressed. The report additionally recommends enshrining a state default guarantee or “public liquidity backstop” (PLB) in ordinary law.

As regards crisis management, the SBA believes that it is important for the cooperation between the Federal Department of Finance, the SNB and FINMA to be further optimised and for the division of responsibilities in the event of a crisis to be made clearer.

In the SBA’s view, there is a substantial need for further analysis and clarification in various areas. For example, the report’s recommendations on deposit insurance, recalibrating the Liquidity Coverage Ratio (LCR), the quality of capital underpinning and FINMA’s powers and supervisory instruments must be investigated in detail.

In summary, the published report provides a valuable and welcome basis for future efforts to improve system stability in the Swiss financial centre further. The SBA will continue to play a constructive role in these efforts and engage in the regulatory and political discourse as a representative of the entire banking sector.