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Swiss National Bank calls for new measures after Credit Suisse crash
Global Banking & Finance Review®
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By Noele Illien
ZURICH (Reuters) -The Swiss National Bank (SNB) on Thursday said it was crucial to draw lessons from the Credit Suisse crisis that led to the bank’s downfall and forced rescue by rival UBS and consider measures that would prevent such events in the future.
“These measures need to strengthen banks’ resilience in order to prevent a loss of confidence wherever possible, and ensure a broad range of effective options to stabilise, recover or wind down a systemically important bank in the event of a crisis,” the central bank said in its 2023 financial stability report.
Among the measures, the SNB called for banks to be required in the future to prepare a minimum amount of assets that could be pledged for central banks, a step designed to help banks access emergency liquidity if worried customers rapidly withdrew cash.
Switzerland’s largest bank recently grew even bigger, following its rescue of embattled Credit Suisse in a takeover engineered by Swiss authorities in March and formalised by UBS on June 12.
Politicians and economists have raised concerns whether Switzerland can effectively oversee a bank that now has a balance sheet of $1.6 trillion and 120,000 employees worldwide, and risks associated with that.
The SNB said it was not yet able to judge how resilient the newly merged bank would be.
“The currently available data are not sufficient for a comprehensive assessment of the combined bank’s resilience in such a forward-looking analysis,” the report said.
Still, lessons needed to be learned “in view of the higher systemic importance of the combined bank and the associated risks for Switzerland,” the SNB said.
The central bank said there were, however, three key observations to come from the crisis, including that compliance with capital requirements is necessary but not sufficient to ensure confidence in a bank.
Capital instruments designed to absorb early losses were not effective, the SNB said.
“AT1 capital instruments absorbed losses only as the point of non-viability was imminent and state intervention became necessary,” the report said.
The SNB also said that the scale and pace of deposit outflows at Credit Suisse that resulted from the loss of confidence were unprecedented and more severe than assumed under the liquidity regulations.
In a statement published the day the biggest banking deal since the 2008 financial crisis officially closed, Swiss regulator, FINMA, said one of the most pressing goals for the new merged bank was to quickly reduce the risk of the former Credit Suisse investment bank, but was confident this could be achieved.
(Reporting by Noele Illien and John Revill Editing by Tomasz Janowski)
A central bank is a financial institution responsible for managing a country's currency, money supply, and interest rates, often overseeing the banking system and implementing monetary policy.
Capital requirements are regulations that determine the minimum amount of capital a bank must hold as a safeguard against financial risks and to ensure stability in the banking system.
Financial stability refers to a condition where the financial system operates effectively, with institutions able to manage risks and absorb shocks without significant disruptions to the economy.
Emergency liquidity refers to funds that banks can access quickly during a financial crisis to meet sudden demands for cash, ensuring they can continue operations without interruption.
A financial crisis is a situation where the value of financial institutions or assets drops rapidly, often leading to widespread economic instability and loss of confidence in the financial system.
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