The Swiss Times - Swiss News in English

Nobel Prize-winning economist: UBS is too big for Switzerland

  • By The Swiss Times
  • 5 July 2023
When Switzerland’s second largest bank Credit Suisse nearly collapsed after years of bad investments and bad press, a state-backed merger forced Switzerland’s largest bank to buy it. One economist says the new bank is simply too big for the alpine nation.
Nobel Prize-winning economist: UBS is too big for Switzerland
UBS headquarters in Zurich overlapping with Credit Suisse’s (Keystone SDA).

Nobel Prize-winning American economist Douglas Diamond advised Switzerland to reinforce its financial oversight of the new UBS “monster bank,” local media Handelszeitung reported.

Diamond was awarded the Nobel Prize in Economics in 2022, along with Ben Bernanke and Philip Dybvig, for his work on how to recover from the 2008 recession and Covid-19 pandemic without causing a global economic depression.

Speaking at an investor conference in Paris, Diamond praised UBS for its overall conservative risk culture, but said it should have not rescued Credit Suisse in the state-backed “shotgun merger” earlier this year. If CS could not have been rescued than a bigger bank should not be tolerated in Switzerland, Diamond cautioned.

Diamond noted that the Alpine nation usually goes further when it comes to regulating its major banks; Switzerland should not have allowed CS to collapse. Additionally, the state should not have written off Tier 1 bonds, he said, adding that they could have been transformed into equity months before.

For now, the biggest lessons for Swiss banks should be exercising better risk behavior. One way to do this could be creating “bonus bonds” so that bonuses are paid out as convertible bonds – helping bank managers think more like shareholders, which will help them mitigate risk.

Moving forward, Diamond says UBS must focus on building its capital base. The bank could use special risk assessments under which long-term assets are valued at market price and are merged with a dividend freeze. It is most important for financial regulators to quell any unrest and focus on the capital base, Diamond concluded.

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