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Credit Suisse crisis shows lessons to learn, Swiss watchdog says
Switzerland’s financial regulator said there were important lessons to be learned for the management of future financial turbulence, after publishing a report that showed Credit Suisse Group AG earned full marks for its resolution planning just months before it had to be rescued by UBS Group AG.
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Finma’s latest study of the state of Switzerland’s five most important banks was released on Wednesday, which the regulator stresses refers to the period before the rescue of Credit Suisse.
The big five are the two large banks soon to be one — UBS and Credit Suisse — plus the three domestic systemically important banks Post Finance, Raiffeisen and Zuercher Kantonalbank. Finma addressed Credit Suisse in an accompanying statement.
“The events surrounding Credit Suisse show how important it is to make concrete preparations for crises,” Finma Chief Executive Officer Urban Angehrn said in the statement released Wednesday. “It is clear that there are important lessons to be learned from the Credit Suisse crisis for future crisis preparations. FINMA will contribute to this objective.”
The fact that Credit Suisse came close to failure despite meeting all of its regulatory capital and liquidity requirements just days before its rescue in March has spurred a debate among global regulators over whether the system of rules itself is fit for purpose.
European regulators are starting to think about recalibrating their treatment of liquidity risk, and the panel of bank regulators known as the Basel Committee are doing a stock take.
In the weeks after the takeover deal was announced, top Finma officials gave multiple interviews and hosted a lengthy press conference to defend the deal and fend off allegations it didn’t do enough to regulate Credit Suisse as client outflows accelerated and investor confidence in the bank plunged.
Traffic-Lights
Finma adopts a traffic-light system for evaluating the five banks’ preparedness for a crisis: green being good, yellow representing cause for some concern and red meaning no plan in place. The institutions submitted their emergency planning documents by mid-2022 and the work to ensure that the banks could be smoothly wound down was assessed as it stood at the end of 2022.
The Swiss authorities ultimately decided against winding down Credit Suisse on the basis that it would have generated a much broader financial crisis.
Both UBS and Credit Suisse scored green across the board in the categories of a recovery plan, a Swiss emergency plan and institution resolvability. These Finma defines as following:
Recovery plan: “In the recovery plan, the systemically important institution sets out which measures it will use to ensure its stability on a sustainable basis in the event of a crisis and be able to continue its business activities without government intervention.”
Swiss emergency plan: “Systemically important banks must demonstrate in the emergency plan that their systemically important functions can be continued without interruption in a crisis. Only functions that are critical to the Swiss economy are deemed systemically important.”
“FINMA continued to view the Swiss emergency plans of Credit Suisse and UBS as ready to implement,” it said.
Post Finance scores a red for having no “plausible” Swiss emergency plan “for reaching effectiveness” while Zuercher Kantonalbank notched an amber for still only having a “plausible” Swiss emergency plan.
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