An eagerly awaited expert report on the lessons learned from the takeover of Credit Suisse is now available. It points to real dangers for the Swiss banking industry.
In its report on banking stability, an eight-member expert group located gaps in banking regulation. According to the analysis presented in Bern on Friday, crisis management, liquidity, supervision, and capital adequacy for systemically important banks need to be reworked, as «AWP» reports from the conference.
Inadequate Too Big to Fail Measures
Referring to the forced takeover of Credit Suisse in March, the panel pointed out that in the event of a possible crisis at UBS, the merger solution with another large Swiss bank is off the table, so it's crucial the restructuring works.
The group, under the leadership of Yvan Lengwiler, professor of economics at the University of Basel, was given the task of learning the lessons of the Credit Suisse rescue. The «too big to fail» regulation enacted after the state bailout of UBS in 2008 and the financial crisis had proved to be of limited use for Credit Suisse earlier this year when it was on the brink of bankruptcy not because of a lack of capital strength, but because of a lack of liquidity.
The Ball is in the Politicians' Court
As a result, the Federal Council decided to review the takeover and to have the committee revisit too-big-to-fail regulations. The report will serve as the basis for a study on systemically important banks under the Swiss Banking Act and for fulfilling proposals submitted by parliamentarians during a special session on the Credit Suisse rescue. The ball is back in the court of politics.
Lengwiler's group calls for periodic crisis simulations, stricter liquidity regulations, and more power for the Swiss Financial Market Supervisory Authority (Finma). By doing so, it's supporting the authority's expressed wishes which became stronger during the crisis. In particular, Finma wants the ability to impose fines and to be able to communicate its actions against errant players.
Last fall, it remained unclear that Credit Suisse was on the brink of being insolvent.
Is an Iceland Scenario Looming?
If the group calls for periodic stress tests and crisis simulations, the same could be said for supervision. The situation with Credit Suisse caught the federal government, the National Bank, and Finma off guard.
If the debate about regulation and banking stability isn't conducted seriously, Switzerland risks being left without a fallback solution in the next big bank crisis, as the experts point out. The country could then suffer the same fate as Iceland in its banking crisis of 2008.
