Credit Suisse was cushioned against catastrophe, says regulator

No amount of regulatory protection could save Credit Suisse from a bank run. © Keystone / Michael Buholzer

At the time of its failure, Credit Suisse bank was armed with practically every safeguard against chaotic disintegration, says the Swiss financial regulator.

The Financial Market Supervisory Authority (FINMA) has issued its official verdict weeks after the dramatic takeover of Credit Suisse by rival bank UBS.

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The takeover deal was rushed through during a single weekend in March as the government invoked emergency powers and promised billions in taxpayer funds to cover potential losses for UBS.

However, FINMA insists that without “too big to fail” regulations, the situation would have been even worse.

“The events surrounding Credit Suisse show how important it is to make concrete preparations for crises. This meant that the authorities had options on the table with the restructuring plan and with the emergency plan that simply did not exist ten years ago,” said FINMA CEO Urban Angehrn, adding that unspecified lessons should still be learned about dealing with crisis situations.

Angehrn’s statement is included in FINMA’s latest annual report on five Swiss banks, including Credit Suisse, whose failure would seriously damage the economy. All five are therefore required to set aside funds to cover financial losses and draw up plans for an orderly bankruptcy.

At the end of last year, Credit Suisse had met the vast majority of its obligations and was in the process of implementing extra measures ordered by the government in 2022, FINMA said in its report issued on Wednesday.

Parliament powerless

The report confirms the failure of “too big to fail” regulations to prevent the panic that engulfed Credit Suisse as it experienced an uncontrollable bank run last month.

Parliament was largely powerless to prevent the takeover deal or use of state funds to smooth it through. But several political parties have demanded tougher rules to prevent future shocks to the financial system.

Among their concerns is the spectre of a merged Credit Suisse and UBS bank that could present an even larger threat to financial stability.

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“The merger of UBS and Credit Suisse will be taken into account in the recovery and resolution planning work by FINMA and the merged bank in the future,” the regulator’s report states.

Back to the drawing board

The report considered the situation of large banks last year but said the Raiffeisen banking group had implemented all mandatory measures to mitigate risk and dissolve in an orderly fashion in the worst-case scenario.

Zurich Cantonal Bank has yet to set aside all the liquid capital it needs to shore up its balance sheet against losses.

PostFinance, the financial arm of the Swiss Post Office, recently failed in a legal challenge against FINMA’s demands. Last year, parliament voted against a government proposal to award PostFinance a full banking licence. As a result of the court and parliamentary decisions, PostFinance “must therefore revise its emergency plan”, says FINMA.