Banking
Swiss National Bank seeks banking regulation review after Credit Suisse crash
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BERN (Reuters) – Swiss banking regulation and supervision must be reviewed following the collapse of Credit Suisse, Swiss National Bank Chairman Thomas Jordan said on Friday, although he warned against “quick fixes.”
BERN (Reuters) – Swiss banking regulation and supervision must be reviewed following the collapse of Credit Suisse, Swiss National Bank Chairman Thomas Jordan said on Friday, although he warned against “quick fixes.”
The central bank played a key role in the state-engineered rescue of Credit Suisse, making 250 billion francs of emergency liquidity available to prevent its collapse and ease its takeover by UBS.
The provision of the emergency loans was secured using Swiss emergency law, a controversial measure which allowed the government to sidestep parliament.
“Banking regulation and supervision will have to be reviewed in light of recent events,” Jordan told the SNB’s shareholders at their annual meeting in Bern, referring to the Credit Suisse crisis.
“This will require in-depth analysis. Quick fixes must be avoided,” he added.
In the future, regulations will have to compel banks to hold sufficient assets which can be delivered as collateral to allow existing liquidity facilities to be used, he said.
This would allow the central bank to be able to provide the necessary liquidity without the need for emergency law.
Jordan said the central bank was now at the limit of the help it could provide under the so-called emergency liquidity plus (ELA+) scheme.
“In granting ELA+, we are going to the limits of what is feasible for the SNB, because with this loan preferential rights in bankruptcy proceedings are the sole security.”
Still, Jordan said the money, of which 108 billion francs was injected in the first quarter, was not a gift to the banks and would have to be repaid – with interest.
Jordan also noted that Swiss inflation had exceeded the SNB’s target range of 0-2% for the last year, reaching 3.2% in the first 3 months of 2023.
“Prices went up more than we would have liked,” he said, leaving the door open for further interest rate hikes.
“At our most recent monetary policy assessment in March, we emphasized that we would continue to tighten monetary policy if necessary.”
(Reporting by John Revill; Editing by Toby Chopra)
Banking regulation refers to the framework of laws and guidelines that govern the operation and conduct of banks and financial institutions to ensure stability and protect consumers.
Emergency liquidity refers to the funds that a central bank provides to financial institutions during times of financial distress to prevent insolvency and maintain stability in the banking system.
Inflation is the rate at which the general level of prices for goods and services rises, eroding purchasing power. Central banks aim to control inflation to maintain economic stability.
Monetary policy is the process by which a central bank manages the supply of money and interest rates to achieve specific economic objectives, such as controlling inflation and stabilizing the currency.
A financial crisis is a situation in which the value of financial institutions or assets drops significantly, leading to a loss of confidence and potential economic downturn.
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