CS crisis: Brunetti calls for “convincing” resolution plan
Published: Friday, Mar 15th 2024, 11:50
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The economics professor Aymo Brunetti, regarded as the "father of too-big-to-fail" regulation, considers a convincing resolution plan to be "indispensable" with regard to the only remaining globally active Swiss bank UBS. In the absence of such a plan, the UBS headquarters should be moved abroad, he said in an interview with "Finanz und Wirtschaft".
With the takeover of Credit Suisse by UBS a year ago, those responsible had chosen an alternative that was considered less disruptive. However, the emergency operation on 19 March 2023 was a "first-class fall from grace" that severely weakened the credibility of the TBTF regime, criticized Brunetti. "In my view, CS should have been wound up."
Extreme risk
With the regulatory adjustments that are now due, Switzerland must assume that UBS will also start to slide again at some point, said Brunetti. The big bank is now extremely large in relation to its overall economic performance. "No other country in the world is exposed to such a large risk as Switzerland."
However, the economics professor also warned against the nationalization of a major bank: this would have "incalculable regulatory and financial policy risks". "If UBS were to become state-owned in this way, there would be a risk of hundreds of billions of francs for taxpayers. This could bleed the state finances dry."
Higher capital ratios
In Brunetti's opinion, the capital ratios for UBS should be "significantly higher": In his opinion, this would reduce the likelihood of a crisis and all the associated risks. "On a greenfield site, I would increase the unweighted capital ratio from the current level of around 5 percent to at least 10 or 20 percent." In view of the political reality in Switzerland, however, such a higher ratio would hardly be possible.
According to the economics professor, UBS's growth ambitions make him "really nervous". "The risk that we all bear is becoming ever greater." Accordingly, Brunetti suggested increasing the progression of capital requirements. "If UBS continues to grow, it would then have to hold a disproportionately high amount of capital." In his opinion, this would also be easier to implement politically than generally stricter capital requirements.
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