ZURICH (Reuters) – Switzerland on Friday published a long-awaited parliamentary report into last year’s collapse of Credit Suisse, an event that called into question the country’s reputation for financial stability and prompted far-reaching questions about what went wrong.
Following an 18-month inquiry, the parliamentary committee made 30 recommendations and requests it said could help prevent a similar crisis in the future. Below are some of the key ones:
UBS AND TOO-BIG-TO-FAIL
UBS bought Credit Suisse in an emergency rescue, leaving it as Switzerland’s sole globally systemically important bank.
The government must take into account how much bigger UBS is in relation to the Swiss economy than large banks in other countries when developing its “too-big-to-fail” (TBTF) rules, and should prioritise financial market stability, the report said.
Such legislation should work towards ensuring that the Swiss financial system is viable and preventing international financial crises.
But the report, the findings of which are expected to feed into the debate around the updated TBTF rules, did not give any concrete suggestions for how much more capital banks like UBS should hold. Imposing higher capital requirements is one of the most contentious parts, and is opposed by UBS.
REIN IN BOSSES
The committee concluded that Credit Suisse’s management was principally to blame for the crisis, and recommended the government consider imposing wide-ranging measures on systemically relevant banks.
Among the options, it suggested limiting bonus payments when business is going badly, strengthening shareholders’ say on stability issues, and introducing a compulsory 10-year residence requirement in Switzerland for a majority of board members.
FINANCIAL REGULATION
While the report acknowledged Swiss authorities had managed to avert a global financial meltdown, financial regulator FINMA came in for significant criticism, echoing prior evaluations of the crisis.
FINMA was accused of being too soft on the bank, in particular in a 2017 decision that allowed Credit Suisse to use an accounting procedure that lowered its capital requirements.
The committee called for the government to introduce measures to curb scope for banks to ease capital and liquidity requirements in future. It also asked the government to give FINMA more powers, including a right to name and shame big banks, to fine managers and to order temporary restrictions on dividends and share buybacks.
The Swiss National Bank (SNB) must be empowered to force systemically important banks into preparations for extraordinary liquidity assistance (ELA), the committee found. It also asked the government to reduce the stigma around such assistance.
The report also floated the idea of leaving audit oversight for systemically important banks solely in FINMA’s hands. Currently, much of the responsibility for that task is held by another body known as RAB.
PUBLIC LIQUIDITY BACKSTOP
Swiss authorities must have the power to use a public liquidity backstop in a crisis, the committee said.
Such a backstop – which effectively provides cash to a lender in trouble with the government bearing the risk – was introduced via emergency law in March 2023 when Credit Suisse was collapsing. However, if one had been available previously it could have eased the panic that saw clients abandon Credit Suisse in 2022 and 2023, the committee found.
In September 2023, the government proposed a legal amendment to introduce a public liquidity backstop. Parliament is expected to debate it next year.
INFORMATION SHARING
When Credit Suisse’s demise accelerated in late 2022, some key Swiss officials were kept in the dark, with discussions between the principal players inside government, the SNB and Credit Suisse management sometimes held in secret undocumented meetings, and the scale of the crisis played down repeatedly.
The committee said the government should improve information sharing procedures and keep adequate meeting records.
(Reporting by Ariane Luthi; Editing by Tommy Reggiori Wilkes and Tomasz Janowski)
Comments