The Swiss government has unveiled proposals to reform financial supervision following the collapse of Credit Suisse and its takeover by domestic rival UBS. Given that the UBS balance sheet is now around twice Switzerland’s annual gross domestic product at US$1.7 trillion, regulators and the public at large probably have ample justification to seek more trustworthy supervisory processes.
However, the proposals have been met with less than palpable relief.
For one thing, the Federal Council still stops short of giving the Financial Market Supervisory Authority or Finma the authority to actually fine offending institutions, long a staple of financial regulation in other leading global jurisdictions. The government has said these matters are still open to discussion, but is explicitly against fining individuals. The Credit Suisse collapse illustrated how few means Finma has to influence the actual behaviour of financial institutions.
Martin Gruenberg, chair of the US Federal Deposit Insurance Corporation, has criticised the Swiss decision to absorb Credit Suisse within UBS. In an interview with the Financial Times, he pointed out that the US was quite ready to deal with the collapse of one of its global systemically important banks, and that he regarded a resolution process as a better solution than the Swiss option.
He noted that the international Financial Stability Board (FSB) concluded in its review of the Credit Suisse debacle last October that the FSB’s resolution process would have been a workable alternative to the merger with UBS. But the Swiss authorities chose not to use it.
In an interview on CNBC, Beat Wittmann, a partner at Zurich-based Porta Advisors, described the collapse of Credit Suisse as an “entirely self-inflicted and predictable failure of government policy, central bank, regulator, and above all [of the] finance minister”. He also said that under the current system, the Swiss regulatory apparatus has no institutionalised knowledge of how to watch capital markets and opined that the government showed no signs of any willingness to institute meaningful reforms.
Under the circumstances, the Federal Council’s recommendation for the financial adequacy provisions for systemically important banks to be reviewed internationally are unlikely to find much traction.
UBS shares fell some 3.6% on news of the proposals. UBS Chairman Colm Kelleher has spoken out previously against higher capital requirements for the bank.
In principle, the government has the authority to enact the reforms without further parliamentary process but in practice, the controversy is hardly over.
