Swiss National Bank Urges Measures to Prevent Future Banking Crises
The Swiss National Bank (SNB) has emphasized the importance of drawing lessons from the Credit Suisse crisis that led to the bank’s downfall and subsequent rescue by UBS. In its 2023 financial stability report, the SNB highlighted the need for measures that would strengthen banks’ resilience and prevent a loss of confidence in the future.
One of the proposed measures is the requirement for banks to prepare a minimum amount of assets that can be pledged for central banks. This step aims to facilitate access to emergency liquidity in the event of rapid cash withdrawals by concerned customers. By having assets readily available, banks can better weather crises and maintain stability.
The recent takeover of Credit Suisse by UBS, orchestrated by Swiss authorities and completed in June, has raised concerns about effective oversight. With a balance sheet of $1.6 trillion and 120,000 employees worldwide, UBS has become Switzerland’s largest bank, prompting politicians and economists to question the associated risks.
The SNB acknowledges that it is currently unable to make a comprehensive assessment of the newly merged bank’s resilience due to limited available data. However, it stresses the need to learn from the Credit Suisse crisis given the higher systemic importance of the combined bank and the risks it poses to Switzerland.
The financial stability report highlights three key observations from the crisis. Firstly, compliance with capital requirements alone is not sufficient to instill confidence in a bank. Additional measures are necessary to enhance resilience and ensure stability. Secondly, capital instruments designed to absorb early losses were found to be ineffective. Only when the bank reached a point of non-viability and required state intervention did these instruments absorb losses. Finally, the scale and pace of deposit outflows at Credit Suisse were unprecedented and more severe than anticipated under existing liquidity regulations.
Switzerland’s financial regulator, FINMA, has also outlined its priorities for the merged bank. One of the main objectives is to swiftly reduce the risk associated with the former Credit Suisse investment bank. Despite the challenges, FINMA expresses confidence that this goal can be achieved.
In conclusion, the Credit Suisse crisis has prompted the SNB to emphasize the importance of implementing measures to prevent similar events in the future. Strengthening banks’ resilience, ensuring access to emergency liquidity, and addressing issues related to capital requirements are crucial steps to maintain confidence and stability in the Swiss banking system.