FINMA wants new instruments after CS crisis
Published: Tuesday, Dec 19th 2023, 16:11
Updated At: Wednesday, Dec 20th 2023, 00:59
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The Swiss Financial Market Supervisory Authority Finma has given itself a good report card for its conduct in the CS crisis. It is now demanding additional instruments from politicians, such as the authority to issue fines, in order to prevent future crises.
Finma has "comprehensively fulfilled" its supervisory duties in the CS crisis, assured Finma Chairman Marlene Amstad on Tuesday at the presentation of the supervisory authority's report on the investigation into the events surrounding the decline of the former major Swiss bank. According to the report, Finma had increasingly intensified its supervisory and enforcement activities at CS due to the accumulation of problems and deficiencies and had imposed ever more drastic measures. In doing so, it went "to the limits of its legal possibilities".
Early and resolute intervention
Finma's intervention at Credit Suisse was "early and resolute", emphasized Thomas Hirschi, Head of the Banking Division at Finma. Although the action had certainly had an effect, it had not been able to make up for the causes of the loss of confidence - such as the shortcomings in strategy implementation and risk management. Ultimately, however, it is not the responsibility of the supervisory authorities to prevent a financial institution from collapsing, he emphasized.
The Finma managers were less than flattering about the CS managers, who apparently put up some resistance to the Finma measures. Among other things, they reacted to the orders with demands for regulatory relief: "It's hard to believe", said interim director Brigitte Rutishauser. No other Swiss bank had implemented Finma's orders so badly, said Hirschi.
Serious defects
Credit Suisse ultimately failed due to shortcomings in strategy and management, Finma concluded. "Serious deficiencies in risk management played a role in practically all of the problems". Due to reorganizations as well as high costs, fines and losses, CS had to repeatedly raise capital. At the same time, CS's major shareholders had hardly exercised their influence on remuneration.
The write-off of the so-called AT1 bonds was an important component of the CS takeover for those responsible at FINMA. Alain Girard, Head of the Recovery & Resolution division, explained that he did not wish to comment on ongoing proceedings with reference to the numerous pending appeals against the ruling. However, he pointed out that it was not for nothing that these bonds delivered a coupon of 9 percent in "good weather": "In bad weather, there is a risk of a total loss."
More solid legal mandate
As one of the lessons learned from the report, FINMA is now calling for stricter instruments: In particular, it is calling for the authority to issue fines in future. It also wants a clearer allocation of responsibilities at banks (senior manager regime). It also considers the possibility of regularly publishing enforcement proceedings to be expedient. At present, these are often not made public. A "more solid legal mandate" is also necessary for effective intervention in remuneration systems.
At a political level, stricter instruments for FINMA are controversial. Last week, the Council of States rejected a corresponding motion from its Committee for Economic Affairs and Taxation (WAK-S), with the majority of the small chamber arguing that it did not want to pre-empt ongoing work in connection with the CS crisis. The Swiss Bankers Association was also very cautious on Tuesday, showing little enthusiasm for Finma's authority to impose fines.
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