Swiss finance minister on banking regulation: ‘We must act’

Karin Keller-Sutter: “We couldn’t play Russian roulette with our economy.” © Keystone / Peter Schneider

The Swiss government intends to submit proposals to parliament in the spring to ensure that a Credit Suisse-style bank bailout will no longer be necessary in future.

“We must act – we have no other choice,” said Finance Minister Karin Keller-Sutter in an interview with the Neue Zürcher Zeitung (NZZ) newspaper on Wednesday.

“We must ensure that a major bank can go under without, in the worst case, dragging an entire country into the abyss,” she continued. She will endeavour to ensure that “all the unpleasant questions are really discussed now”. This has nothing to do with hostility towards systemically important banks, but with “our responsibility for the Swiss economy”.

She did not want to say what the proposals to parliament would look like. “The draft is available. But I cannot anticipate the discussion in the Federal Council.” A comparison with other countries will certainly be made and how strict the regulations here are analysed. “Our primary goal is to protect the state and taxpayers.”

+ Where did it all go wrong for Credit Suisse?

Keller-Sutter did not wish to comment in detail on the role of financial regulator FINMA in the rescue of Credit Suisse by UBS. It was a matter for the parliamentary commission of enquiry to investigate. When asked about the role of the Federal Council in this, she said: “We do elect the board of directors of FINMA, but it works independently.” The Federal Council has no authority to issue directives, she said.

Entrepreneurial failure

Keller-Sutter emphasised in the interview that Credit Suisse’s downfall was primarily due to the entrepreneurial failure of the board of directors, the executive board and the shareholders. “The management team led the bank to its downfall. It was a process of disintegration that lasted for years.”

When asked whether Credit Suisse could have been wound up, Keller-Sutter said: “Theoretically, that would have been possible, but only at enormous risk.” Credit Suisse had already run aground on the iceberg and would have gone bankrupt on Monday if no solution had been found on Sunday, she said.

Compared to the takeover by UBS, the risk of losing the liquidity that the governmnt had guaranteed to the Swiss National Bank would have been greater in the event of a liquidation, Keller-Sutter continued. She pointed out that UBS CEO Sergio Ermotti had also recently said that liquidation would have been “pure masochism”.

In any case, she said the case was clear to the government: if there was a solution with fewer risks and better prospects of success, the financial centre should not become a guinea pig for the practicality of the too-big-to-fail rules, which had never been applied to a major bank before. “We couldn’t play Russian roulette with our economy.”

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