The measures proposed by the Swiss government to reduce the likelihood of a systemically important bank falling into crisis are not ambitious enough, according to experts.
The Swiss Federal Council published a report on Wednesday, evaluating the Swiss “too big to fail” regime following UBS's takeover of Credit Suisse in March 2023. The Federal Council aims to increase financial stability by implementing 22 measures.
What disappointed observers the most was the government’s decision not to pursue greater capital requirements. While the 209-page document outlined intentions for a “significant increase” in capital requirements, they did not mention a specific figure.
“Not many specifics could be provided when it comes to, for instance, the equity capital requirements, or the liquidity requirements, or the resolvability,” said Peter V. Kunz, professor at the University of Bern, who described the text as more of a “declaration of intent”.
According to Rebecca Stuart, a fellow at the University of Neuchâtel in Switzerland, “it seems that the ‘prevention measures’ — capital and liquidity requirements — do not go as far as the Swiss Financial Market Supervisory Authority and the Swiss National Bank would have liked. That is worrying.”
Resolvability is also a point stressed by Stuart. “It seems very unlikely that the authorities will ever dare to resolve UBS,” she said.
“If UBS is in difficulty, then the Swiss financial system will be under extreme stress,” she added. “The authorities argued that Credit Suisse could not be resolved because of the wider financial market turmoil at the time. What are the chances that a [global systemically important bank] will fail during a period of financial market calm? With no large bank to buy out UBS, the potential cost to the Swiss taxpayer is unnerving.”
Moreover, the measures were shy with regard to ensuring bankers’ accountability.
Molly Preleski, risk and regulation expert at PA Consulting, said she found it encouraging to see that Switzerland plans to implement an individual accountability regime for senior managers, including giving itself the ability to mandate deferment and clawback.
But “lots of work remains to understand how it will work in practice, and ensure that the Swiss regime complements other regimes globally and is effective in practice”, she added.
“It’s notable that a decision has not yet been reached on the ability to impose fines,” said Stuart. “The threat of enforcement is an important deterrent against individual misconduct.”
In each and every jurisdiction, the regulators can give fines to banks and bankers, said Kunz. “So even in such an issue, Switzerland is clearly behind the international standard,” he added.
Kunz expressed scepticism about the government’s willingness to implement strict regulations on banks. “I’m sure all the suggestions in this report will be watered down,” added Kunz.
“It’s like a political stop-over to count the nerves of politicians and media, but nothing is decided yet. One year ago, there was a general feeling that we need some tough measures on banks and bankers. However, nothing really serious happened to Credit Suisse and to Switzerland. People are quite forgetful when it comes to a crisis,” he added.
“We have only one really big bank left in Switzerland, and people don’t want to harm it. More than 100,000 employees depend on UBS. UBS is really important for the Swiss economy. So politicians are not willing to take tough measures,” Kunz said.
