In a last-minute decision, the Swiss government and authorities opted to sell the crisis-stricken Credit Suisse (CS) rather than rehabilitate it. UBS President, Colm Kelleher, announced the sale of CS to its larger Swiss competitor on the memorable evening of March 19, 2023, stating that there were no longer any alternatives.
However, just hours before, alternatives to selling CS were considered. As revealed by the Swiss Financial Market Supervisory Authority (Finma) in December, both the sale and the rehabilitation of CS according to “Too big to fail” rules were viable options. The latter was even ready for signature as a “Plan B”. But all involved authorities, including those abroad, agreed that the takeover by UBS was the less risky option.
The stabilization of the bank with emergency liquidity and its gradual restructuring under new management remained a “What if” scenario. The Financial Stability Board (FSB), the global financial system’s top guardians, were even confident that this approach would have worked with CS.
Looking at the handling of the new mega-bank, it seems that if the “new” UBS ever needs rescuing, nothing but that Plan B will be considered. The state has shown during the rescue of CS that it does not want to save a Swiss big bank again. A temporary takeover by the federal government (Temporary Public Ownership, TPO) would completely undermine the “Too big to fail” regulations that Switzerland developed in response to the UBS rescue in 2008.
The Federal Council instead proposes a state-guaranteed emergency liquidity, the so-called Public Liquidity Backstop (PLB). This was already used in the CS rescue by emergency law. Looking to the future, the measure is to be transferred into ordinary law, which has led to disagreements in banking crises.
The Federal Council plans to present an evaluation of the so-called “Too big to fail” regulation for systemically important banks to Parliament next spring. The question of additional equity for UBS will probably be central. Such could be deemed necessary to support the rehabilitation of the now much larger big bank. Finance Minister Karin Keller-Sutter promised that all the uncomfortable questions will be really discussed in the upcoming evaluation. The top goal, emphasized the Federal Councilor, is to protect the state and taxpayers.
For experts like Reto Schiltknecht, who once oversaw the implementation of the “Too big to fail” rules at the big banks for Finma, a tightrope walk is emerging for the country. On the one hand, Switzerland would reach its limits with the emergency liquidity for UBS. For the new mega-bank, the state-guaranteed PLB would have to amount to around 300 billion francs, Schiltknecht recently told the “NZZ”.
If you want high equity ratios, you have to name names, the former financial supervisor continued. Then you have to say: Switzerland, as a small country, no longer wants to afford a bank like UBS. Because in today’s market environment, UBS could no longer operate with such sharp capital rules, Schiltknecht warns.
Therefore, the preparations for a rehabilitation solution for the banking colossus must still be fought for. The only thing that is certain at the moment is this: no other solution is currently in sight.
This News Article was automatically generated by Bob the Bot (AI)
| Information | Details |
|---|---|
| Geography | Europe |
| Countries | 🇨🇠|
| Sentiment | neutral |
| Relevance Score | 1 |
| People | Reto Schiltknecht, Karin Keller-Sutter, Colm Kelleher |
| Companies | Finma, Bundesrat, Raiffeisen, Zürcher Kantonalbank, UBS, Postfinance, Parlament, Nationalbank |
| Currencies | Swiss Franc |
| Securities | None |
