The vice-chairman for supervision does a lookback on the recent financial crises in detail just in time for the second anniversary of UBS’s government-prompted takeover of Credit Suisse.
We are nearing two years since the Swiss government’s prodded UBS into acquiring what was once Switzerland’s second largest bank, rescuing it from near-certain collapse.
That is both a long and a short time. It is long from the point of the basic news but short when it comes to a historical assessment of what happened, the context, and what it all means.
Certain Reconsideration
Many of the parties involved underwent severe criticism from all quarters after it was announced, but we now seem to be experiencing, of sorts, a certain reconsideration of the events then.
Part of that is likely due to UBS’s success in integrating Credit Suisse, but is it also because of the passage of time and a generally less fraught atmosphere, particularly in Switzerland, this commentator from finews.asia included.
Stronger Now
An interview with the CIO of Rothschild & Co Bank AG on Tuesday, Carlos Mejia seemingly underscores that change in sentiment, with his view that FINMA and the Swiss National Bank had done «a very good job», and that country’s financial sector had emerged from the crisis strengthened.
A recent speech by Federal Reserve Vice Chair for Supervision Michael S. Barr builds on that shift in perspective by providing another take that goes beyond a purely domestic view.
Difficult Spring
Barr starts with a lookback that led to the failure of Silicon Valley Bank, and then Signature Bank, in March of that year, before casting his eye at Credit Suisse.
«Stress and outflows at Credit Suisse picked up in the fall of 2022, and we spent many months working with Swiss, European, and U.K. regulators on how to manage the growing issues, including war-gaming potential resolution scenarios,» he indicated.
Ineffective Controls
Concerns about its viability intensified on 9 March 2023 when it announced that its internal financial reporting controls were deemed ineffective and had been so «for several years», Barr continued.
What is interesting here is that the regulators had been mapping out scenarios well in advance, not something that was commonly acknowledged in the heated and tense environment after the deal became public.
Extraordinary Loss-Sharing
«Just one week after SVB failed, Swiss authorities arranged for Credit Suisse to be acquired by UBS in a weekend deal that involved triggering Credit Suisse's contingent convertible capital instruments, a severe dilution of shareholders, and the removal of senior bank management, as well as emergency liquidity support and extraordinary loss sharing from the Swiss government,» he said.
The extraordinary loss-sharing is also not something that is frequently discussed in that matter or sentiment, and it is likely to raise eyebrows in certain political quarters in Switzerland. Some may believe it indicates that the government went too far, while others will continue to hold that it did not go far enough.
International Coordination
«In a sense, Credit Suisse had failed very slowly over many months—even years—and then all at once. The combination of these events involved coordination across US and foreign jurisdictions, with careful monitoring and cooperation to identify risks to financial stability and to monitor spillovers to the U.S. and European banking systems,» Barr stated.
This is also a remarkable statement that shows that many of us may have gotten everything completely wrong at the time – and in future the Credit Suisse example could become a case study for what should be done when things go badly wrong in the financial sector.
