Throughout history, the US banking giant J.P. Morgan has often played a key role in stabilizing the financial system in times of crisis. Similarly, without the Swiss banking giant UBS, the Credit Suisse crisis would not have been resolved. Regulators should once again focus more on private solutions for managing banking crises.

The ceremony may have taken place a few weeks ago, but it was still significant enough for UBS to highlight it prominently within its half-year report. At the «Euromoney Awards for Excellence», the most prestigious global banking awards, the Swiss banking giant won two coveted titles: «Best Bank in the World» and «Best Bank in Switzerland», among other honors.

During the awards ceremony, the organizer, Euromoney, made it clear that UBS' role in the rescue of Credit Suisse (CS) was the decisive factor for these accolades. Peter Lee, the editor-in-chief of the magazine for nearly 20 years, explained in a detailed article that there were three main reasons for awarding UBS the title of the world's best bank.

UBS: Strong and Stable, Effective Strategy, and Quick Implementation

Firstly, UBS was strong, well-managed, and stable enough to play the role of a J.P. Morgan in Europe, preventing a systemic collapse.

Secondly, during the tense weekend of the CS rescue in March 2023, the bank played its hand masterfully, developing a solution that both calmed market panic and addressed the concerns of UBS shareholders.

Banks as Part of the Solution

Thirdly, UBS quickly made the necessary repairs to its troubled rival in the following months, regaining customer trust, giving many CS employees hope for the future, making important strategic decisions, and reducing non-core assets and costs.

Regardless of whether one views the CS rescue—significantly involving UBS, the Swiss Federal Council, the Swiss National Bank (SNB), and the Financial Market Supervisory Authority (Finma)—as the only viable option, the best of all possible solutions, or a «big mess» the fact that UBS was crowned the world’s best bank because of it highlights a long history in which banks have not only been the cause of financial crises but also part of the solution.

Private Solutions in Focus

In fact, for a long time, financial crises were primarily managed through «private solutions», even though governments and central banks often negotiated alongside them. Lee's comparison of UBS to J.P. Morgan shows his deep understanding of banking history.

J.P. Morgan, today the largest bank in the world by market capitalization, played a key role in stabilizing the financial system under its legendary founder, J. Pierpont Morgan, even before the creation of the US Federal Reserve. The iconic image of Morgan single-handedly leading the resolution of the severe 1907 U.S. banking crisis remains unforgettable. Morgan died in 1913, the same year the Federal Reserve was established, is a fitting historical footnote.

Key Role of the U.S. Banking Giant

Even in recent history, during the 2008 global financial crisis and the turmoil surrounding US regional banks in the first quarter of 2023, J.P. Morgan repeatedly stepped in to support or acquire struggling financial institutions, thereby limiting contagion risks. However, in these crises, government authorities took the lead.

J.P. Morgan’s unique position is still evident today, particularly when its confident and outspoken CEO, Jamie Dimon, who has successfully led the financial giant for two decades, frequently criticizes regulations and calls for a «rethinking of the entire system».

UBS with Ermotti Following in J.P. Morgan’s Footsteps?

Is UBS now truly the new J.P. Morgan of Europe, with CEO Sergio Ermotti following in the footsteps of J. Pierpont Morgan or at least Jamie Dimon? One argument against this is that UBS itself had to be rescued (or «stabilized», as it was euphemistically called) by the Swiss Federal Council, SNB, and Finma during the 2008 financial crisis, while Credit Suisse managed to weather that storm without state aid.

However, the old idea that banks should help clean up the damage caused by other banks still has a certain appeal—at least from the taxpayer's perspective, who ultimately bears the risk if something goes wrong during state-led rescue operations.

Examples Close to Home

It might be worthwhile for Swiss regulators to shift their focus in this direction rather than expending energy on crafting more regulations, such as requiring even more capital reserves or refining the already highly complex too-big-to-fail resolution system, which proved impractical during the crisis.

Recent Swiss financial history offers some valuable lessons on what works, when, and how. After the real estate crisis in the early 1990s, the Canton of Solothurn sold its cantonal bank to Swiss Bank Corporation in 1994. In 1996, the Canton of Appenzell Ausserrhoden parted with its cantonal bank, which was acquired by the Swiss Bank Corporation. Swiss Bank Corporation and Union Bank of Switzerland merged a quarter-century ago to form UBS; even back then, it seems, the path inevitably led to what is now Switzerland's only major bank.