Tue, Mar 19th 2024
The Credit Suisse crisis exposes critical areas needing reform in Switzerland’s banking regulations, according to the SNB’s insights.
For the Swiss National Bank (SNB), the CS crisis a year ago highlighted weaknesses in the regulatory framework.
In particular, the SNB sees a need for action in the areas of early intervention, capital and liquidity requirements as well as recovery and resolution planning.
According to the SNB’s annual report published on Tuesday, the strong focus on regulatory figures in the case of Credit Suisse delayed the implementation of stabilization measures.
Although Credit Suisse met the regulatory capital requirements even at the height of the crisis, clients, rating agencies and investors increasingly lost confidence in the bank.
The corrective measures initiated by the bank were not enough to stabilise on its own in time. The end result was a takeover by UBS and support measures from the SNB and the Swiss government.
In order to stabilise a systemically important bank in good time, the instruments for early intervention should therefore be expanded to include market-based and forward-looking key figures.
According to the annual report, the SNB has identified a need for action in the area of capital regulation in two respects: firstly, the AT1 instruments have not been able to make their intended contribution to stabilising the bank. Secondly, contributions suspending repurchases and interest payments in good time and converting the instruments into CET1 capital at an earlier stage.
At the same time, however, CS’s CET1 capital has also proven to be insufficiently valuable in some cases. The capital base must therefore be strengthened qualitatively.
It is also important to improve the supply of liquidity. Here, too, the CS crisis has shown that the prospects of stabilisation or restructuring are severely impaired if the bank concerned has already lost a large part of its deposit base.
The banks should be obliged to prepare a significantly higher volume of collateral for obtaining extraordinary liquidity assistance from the SNB and foreign central banks, according to the SNB.
There are a lot of questions concerning how this crisis was dealt with. Would Switzerland and the SNB be able to contain another crisis? Even prevent it one from happening. We have done articles in the past criticising Finma. The backbone of financial regulation in Switzerland. Are Finma really up to the task, some don’t believe they are.
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