The president of the SNB defended his institution against accusations it intervened too late in the collapse of Credit Suisse. It will keep a watchful eye on the market power of the newly emerging banking colossus.
Swiss National Bank president Thomas Jordan made it clear at a media conference following SNB's interest rate decision today that UBS must do everything to ensure its takeover of Credit Suisse is a success. It is not only a matter of importance for UBS, but also for the Swiss economy and international financial markets.
Initial market reactions to the private-sector takeover of the fallen bank have been positive, Jordan added. Nevertheless, UBS will be under increased scrutiny, including from the Swiss National Bank, and «must not rest.» With the same slogan, UBS revived itself after the state rescue in the wake of the 2008 financial crisis.
No Outside Pressure
Jordan denied pressure was exerted from abroad on the emergency rescue, which would have influenced the decision. All available options were considered, and time was of the essence with a solution having to be found by Sunday before Monday's market opening.
With the fragile environment and the banking crisis in the US, it became clear that a liquidation would not work, and would undoubtedly have exacerbated the banking crisis.
Don't Blame Mobile Banking
Asked about the bank run at Credit Suisse, Jordan ruled out new opportunities offered by digital and mobile banking as the culprit. Instead, he cited a loss of trust in various banks as the cause, with Credit Suisse getting caught up in the maelstrom.
In such a crisis, even the strictest capital regulations and liquidity support can prevent a collapse.
Buying Time
In Jordan's view, on Wednesday of last week, there was no direct danger of contagion to Credit Suisse, since it was not directly exposed to teetering American banks. But to prevent an uncontrolled situation, rapid liquidity assistance had become necessary, Jordan said.
By providing liquidity, the authorities tasked with the rescue bought themselves needed time to find a way out. The division of roles in safeguarding financial stability in the process was clear. The SNB provided liquidity as part of its mandate, Finma acted as the supervisory authority, and the Department of Finance was responsible for the regulation and use of taxpayers' money.
No Belated Intervention
Accusations the SNB and the authorities acted too late are unjustified, Jordan said. The SNB was in constant contact with the authorities and Credit Suisse because a sudden loss of confidence could not be ruled out.
According to Jordan, stockpiling liquidity assistance would not have been a good idea. It could have been misinterpreted and even have triggered a run on the bank. Any support always had to be accompanied by additional measures.
Political Interference
The SNB head did not want to speculate on whether a domestic spin-off of Credit Suisse, now integrated into UBS, would one day become an option, and is currently a non-issue, he said.
Various parties have already taken a position calling for the Swiss business of Credit Suisse to be separated from the new entity. To this end, a motion will be submitted to the Economic Commission, which is to be dealt with as early as the extraordinary session planned for April.
Too Much Bank Concentration
For Jordan, the size of the new and much larger UBS is certainly relevant, and why sufficient competition in Switzerland must be ensured. The supervisory authorities will have to examine this new paradigm and adjust system stabilizers.
Presently, the authorities have to focus on maintaining financial stability and accompanying the implementation of the merger, according to Jordan. Moreover, current capital regulations stipulate that the capital buffers of a systemically important bank increase disproportionately the larger the bank is, which should encourage UBS to align its balance sheet accordingly and avoid riskier business.
Non-Universal Banking System
Jordan was critical of the introduction of a non-universal banking system in Switzerland. The current banking crisis in the US in particular clearly shows that crises occur in different places, and shows there is no absolute security in a separate banking system. In addition, universal banks live precisely from the fact that they can offer the broadest possible range of services.
To avoid contagion, the SNB believes a supply of liquidity is needed that functions not only in Switzerland and its currency. According to Andréa Maechler, it is at least as important to have a functioning network of central banks that can cover liquidity needs in different currencies.
