SNB Stability Report – National Bank Draws Lessons From UBS/CS Merger News

• The rapid demise of Credit Suisse in March this year came as a huge surprise to the Swiss National Bank.
• Accordingly, lessons must be learned on how to avoid such crises in the future.
• This is the conclusion of the Swiss National Bank in its Financial Stability Report 2023.

“The cause of the Credit Suisse crisis was not a macroeconomic shock, as is assumed in the SNB’s stress scenarios,” the SNB wrote in the report. Rather, the crisis was the result of repeated incidents at the bank itself, mainly caused by breaches of legal and supervisory obligations and deficiencies in risk management and led to reputational damage.

The takeover of CS by UBS on March 19 and the measures taken by the authorities led to an immediate stabilization of the situation, according to the Swiss National Bank. In order to prevent another crisis for the Swiss financial position, “it is important to learn the lessons from the Credit Suisse crisis and take appropriate measures.”

These measures should enhance the flexibility of banks in order to prevent a loss of confidence as much as possible. And it should contain a wide range of effective options for stabilization, restructuring or a system-critical bank solution in the event of a crisis.

According to the Swiss National Bank, in the future banks should be obligated to allocate a minimum amount of assets that can be pledged to central banks.

Incoming check

Taken together, these observations also raise questions, according to the SNB, about whether a systemically important bank can be obligated under the TBTF (“too big to fail”) rule in time to take sufficient corrective action to be able to recover from a stressful situation from own. In any case, recent experience has shown that regulatory norms in stressful situations are relatively narrow and corrective action can be delayed.

In the case of computer science, reality does not follow the textbook

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SRF/Charles Benoit

Economic Editor Jan Baumann’s assessment: “The National Bank has set out to analyze the crisis in Credit Suisse. In doing so, it has discovered weaknesses in the safety net of the big banks.

The crux of the matter is that CS had enough capital even during the crisis that started last fall. She also had enough liquid funds. According to the textbook, this should have been enough to get the bank out of the crisis. But the reality in the case of computer science did not stick to the textbook.

Although the security requirements were met, the bank failed. The main reason was that CS had corrupted the trust of customers through numerous scandals and negative headlines. Since the capital pillow helped a little. Even talk of liquidity support from the National Bank was only enough to keep CS afloat until the emergency sale to UBS.

The National Bank now wants to learn from this experience – as Parliament, the Federation and the authorities plan to do too. However, it remains to be seen how effectively the safety net and regulations of the new UBS/CS mega-bank will be improved so that a CS-style disaster does not recur.”

According to the SNB, it is now up to the authorities to conduct a thorough examination and draw lessons, also regarding the merged bank’s higher systemic importance and the associated risks for Switzerland. A comprehensive analysis is performed as part of the regular legal review of the TBTF regulations.

According to the Swiss National Bank, the implementation of the revised liquidity regulations will also play an important role. The results will be presented to parliament within twelve months as part of the next Federal Council report on systemically important banks. She confirmed that the Swiss National Bank would be involved in this work.