Federal Council wants to prevent a second CS case with 22-point plan
Published: Wednesday, Apr 10th 2024, 14:40
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Clearer allocation of responsibilities, more powers for financial market supervision, more crisis-proof resolution plans: this is how the Federal Council wants to prevent a second CS case. Generally speaking, higher capital requirements and a ban on bonuses are out of the question.
Following the demise of Credit Suisse (CS), the Federal Department of Finance (FDF) held out the prospect of an overall evaluation of the regulatory framework. The 339-page report was published on Wednesday.
The Federal Council concludes "that many of the measures already introduced nationally and internationally to increase financial stability have basically proven their worth". However, the analysis also shows gaps in the existing system and therefore a need for action to further develop and strengthen banking regulation.
Wide range of proposals
The need for adjustments to the "too big to fail" regime is largely undisputed. However, the specific measures to be implemented are likely to cause debate in parliament.
The Federal Council provides a broad overview in its report. It addresses a total of 37 measures in the areas of supervision, capital requirements, early intervention, securing liquidity in a crisis, resolution planning and crisis organization. It intends to implement 22 of these measures and examine seven others in greater depth. The Federal Council rejects eight measures.
The package of measures is divided into three main thrusts: Firstly, the Federal Council wants to improve prevention, secondly to strengthen liquidity and thirdly to expand the range of crisis instruments. The main objective is to strengthen the stability of the four systemically important Swiss banks UBS, Postfinance, Raiffeisen and Zürcher Kantonalbank (ZKB). It must also be ensured that UBS, as the only globally systemically important Swiss bank, could be wound up in the event of a crisis.
More liquidity from the SNB
The Federal Council is also proposing extended powers for the Swiss Financial Market Supervisory Authority (FINMA) - for example, clear responsibilities for managers. Finma's authority to impose fines is being examined.
Furthermore, the potential for the Swiss National Bank (SNB) to provide liquidity is to be significantly expanded. In addition, the possibility of a public liquidity backstop in the event of a restructuring of a systemically important bank is to be transferred to ordinary law, as proposed by the Federal Council to Parliament in September 2023.
In order to strengthen the resolvability of systemically important banks, resolution planning is to be expanded and the legal risks associated with implementation are to be further minimized. In addition, the crisis organization and cooperation between the authorities are to be reviewed and, if necessary, regulated more clearly.
No ban on bonuses
Experts assumed in advance that the report would also contain recommendations for new capital adequacy requirements or stricter sanctions against management. These expectations were only partially fulfilled.
It is true that the capital requirements for systemically important banks are to be strengthened quantitatively and qualitatively, in the words of the Federal Council "in a very risk-oriented and targeted manner". However, the Federal Council does not want to increase capital requirements across the board, as this would not adequately take into account the risks entered into by systemically important banks.
A bonus limit or a ban on bonuses is not an issue for the Federal Council. In his view, such an instrument would "not be expedient". Studies have observed higher fixed salaries as a side effect. This increases the fixed costs for the company, which limits the possibility of reducing costs, particularly in times of crisis.
Ambitious roadmap
However, according to the Federal Council, bonuses should be linked to criteria of long-term economic success and may also be subject to blocking periods. In the event of mismanagement, bonuses should be canceled, even retroactively - regardless of whether they have already been paid out.
In its further work on implementing the proposed measures, the Federal Council will also take into account the findings of the Parliamentary Commission of Inquiry (PUK), as it wrote. Its report is expected at the end of the year.
The aim is to present two packages for implementation simultaneously in the first half of 2025. One with amendments at ordinance level, which can be adopted by the Federal Council, and one with the key parameters for the amendments at legislative level, which will be submitted to Parliament.
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