SNB Says Banks Need Better Liquidity, Loss Absorption Plans

(Bloomberg) — The Credit Suisse crisis showed that Swiss banks need to plan better for emergency situations in terms of liquidity, intervention rules and loss-absorbing capital, according to the Swiss National Bank. 

SNB Vice President Martin Schlegel said in Zurich on Thursday:

• Liquidity requirements should take appropriate account of the liquidity needs observed during the Credit Suisse crisis
• Options for the stabilization of systemically important banks at an early stage should be expanded
• Banks’ equity should be structured in a way that losses can be better absorbed

A collapse in confidence around Credit Suisse and the withdrawal of tens of billions of dollars in client funds from the end of 2022 led to the bank’s takeover by UBS Group AG in March last year. The SNB’s voice is adding to a debate on the future design of Swiss financial regulation, with the government set to report next month on its proposals for legislation. 

“The measures I have outlined are aimed at making the financial system more resilient,” Schlegel said. “The SNB is actively involved in ongoing work to adjust the regulations, at both national and international level.”

The SNB’s proposals address some key features that made the stabilization of Credit Suisse and its ultimate rescue more difficult. The rapid withdrawal of liquidity by clients outstripped the design of provisions made during the last financial crisis, meaning that although Credit Suisse met its regulatory obligations it still faced a funding crisis last year. Regulators, in particular bank watchdog Finma, had relatively few powers to force changes at Credit Suisse before it was too late.  

On the equity point, the SNB said that “a more robust valuation of assets that are included in regulatory capital as well as a more solid regulatory treatment of participations,” are needed. The central bank also reiterated its view that lenders need more collateral specifically to gain emergency liquidity from itself and other monetary authorities. 

Earlier this week the SNB said that the capital rules for the new, enlarged UBS need to be re-examined to ensure they fully take account of the lender’s importance in the financial system. 

©2024 Bloomberg L.P.