Experts argue that Switzerland needs to better prepare itself for major banking crises

A group of experts argues that Switzerland must prepare adequately for the emergence of a new crisis in a major bank after the collapse of Credit Suisse, but the report prepared by the group for the Swiss government rules out the need for a radical reform that some cite as necessary.

UBS emerged as Switzerland’s largest bank earlier this year after the country’s government staged and partially funded its rival’s takeover of Credit Suisse to prevent the institution from collapsing.

The demise of one of the world’s largest banks and a long-standing symbol of Swiss financial strength came as a surprise to the country’s authorities and regulators, who had long scrutinized Credit Suisse amid a series of scandals affecting the bank.

A group of Swiss experts, including bankers and academics, argued on Friday that the government should improve its preparedness in case UBS, which became much larger after it absorbed Credit Suisse, gets into trouble.

The group called for the country’s regulatory body, FINMA, to have more power to impose sanctions. Experts also argue that the FINMA needs more authority to intervene and that better coordination between the Swiss authorities is needed.

The group also recommended that FINMA approach bank executives before a new crisis occurs.

Experts have also suggested that it should be easier for banks to obtain central bank funding, which would mean easing rules on the collateral that can be offered in return.

The takeover of Credit Suisse – the first rescue plan for a global bank since the 2008 financial crisis – freed UBS from its main rival.

This changes the banking landscape in Switzerland, where Credit Suisse and UBS branches are scattered all over the place, sometimes just a few meters apart.

The banks, two of the most systemically relevant banks for global finance, hold combined assets of up to 140% of Switzerland’s GDP, in a country that relies heavily on finance for its economy.

The collapse of Credit Suisse sparked an international debate about the reforms introduced after the latest financial meltdown to prevent banks from getting too big to liquidate, a move that has since failed.

Although Switzerland imposed losses on shareholders and some bond investors – one of the pillars of reforms in the aftermath of the 2008 crisis – they resisted the prospect of liquidating Credit Suisse, opting instead to sell the bank to its main rival.

Some experts see serious shortcomings in the action of the Swiss authorities.

“Swiss monetary policymakers have failed to properly supervise Credit Suisse over the past decade, leading to its collapse,” said Beat Wittmann, chairman of Porta Advisors, a Swiss advisory firm. “Unfortunately so far there is no political will to learn any lessons,” he said.

Nicolas Veron of the Peterson Institute for International Economics in Washington warned that Switzerland could be hurt if UBS gets into trouble.

“Credit Suisse’s bailout is not a perfect success, but neither is it a story of political failure.”

“The Swiss had two options: merger, plan A, or liquidation, plan B, and the decision was that a deal would be better,” he said, adding that there is no longer any such alternative if UBS is in the trouble.

During the 2008 global financial meltdown, it was UBS, not Credit Suisse, that needed a state bailout.

At the time, the Swiss central bank lent more than $54 billion to a vehicle UBS used to get rid of distressed debt, including subprime loans.

Source: Terra

Rose

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