January 13, 2024

2024-01-13 07:00:00

Credit Suisse’s demise was sealed by an uncontrollable bank run. Keystone / Martin Ruetschi

The last months of the Credit Suisse bank, taken over under duress by its rival UBS in March 2023, are the subject of heated discussions within the Confederation. Who is responsible for this debacle? The main suspects are now working to clear customs.

This content was published on January 13, 2024 – 08:00 January 13, 2024 – 08:00

Matthew Allen

When he’s not covering fintech, cryptocurrencies, blockchain, banking or business, the swissinfo.ch economics correspondent enjoys cricket on various grounds in Switzerland – including on Lake St. Moritz when he is frozen.

The emergency takeover of Credit Suisse in March by its rival UBS was a publicity disaster for the entire Swiss financial sector, known for being stable and secure.

Although this disaster did not cause as much damage as the 2008 implosion of the Lehman Brothers bank in the United States, the situation raises a lot of uncomfortable questions. The most common of all: why weren’t the warning signs noticed? How is it possible that the bank was finally bought out urgently by UBS in a single weekend? What happens next if UBS also finds itself in difficulty?

swissinfo.ch examines the role of the main suspects in the Credit Suisse crisis.

The suspects

There is one point on which everyone agrees: several successive managers performed their jobs very poorly in the years preceding the bank’s collapse.

>> To watch once more: our filmed debate on the fall of Credit Suisse:

Investors lost confidence in the bank following a series of scandals and commercial errors, causing between autumn 2022 and March 2023 a catastrophic flight of customers, who withdrew their deposits en masse. But what regarding state actors, responsible for policing banks that are “too big to fail”, namely the Swiss Financial Market Supervisory Authority (FINMA), the Swiss National Bank (NBS), the Ministry of Finance and parliamentarians?

The regulator

FINMA published a lengthy report on its interactions with Credit Suisse, which can be summarized as follows: “We have done everything we can, but our powers are too limited to be truly effective.”

The regulator has repeatedly requested that it be given the power to impose fines, designate and blame certain actors, limit excessive remuneration and effectively discipline bank executives.

However, the Archyde.com news agency accuses FINMA of having vetoed a proposed nationalization of Credit Suisse approximately six months before its takeover by UBS.

FINMA has not directly responded to these accusations, but in its report it provides a possible explanation for its reasoning in handling the Credit Suisse affair: “Generally speaking, a private solution is preferable to measures imposed by the state”, because this route is “more appropriate, more targeted and more proportionate”, affirms the report. However, the final decision belonged to the Federal Council, which preferred a solution other than nationalization, it is added in the report.

Some media also attacked FINMA President Marlène Amstad, accusing her of being too dictatorial and too critical of her employees. He is accused of his responsibility in the departure of several employees following taking office in 2021, including several directors: Mark Branson in 2021, followed by Urban Angehrn six months following the takeover of Credit Suisse.

Whatever the internal situation within FINMA, the authority today operates under the direction of an interim director, while requesting more powers.

The central bank

The Swiss National Bank also claims to have done everything possible, including offering several hundred billion francs in emergency loans to Credit Suisse, and ensuring that the acquisition by UBS goes off without a hitch. She also played a fundamental role in the success of this acquisition by negotiating support for this buyout from the central banks of other countries.

Unlike FINMA, the SNB is not demanding that its powers be expanded. On the contrary, its president, Thomas Jordan, wishes to limit the bank’s direct involvement in commercial bank bankruptcy cases, particularly the risks of losses linked to rescue plans.

His message is clear: emergency financing can be offered, but only if it is guaranteed by commercial bank assets or taxpayer money.

The SNB declined to comment on Archyde.com’ report that FINMA had vetoed the recommendation to temporarily nationalize Credit Suisse in the fall of 2022.

The Ministry of Finance

Two Finance Ministers succeeded one another during the last months of Credit Suisse’s existence: Ueli Maurer until the end of 2022 and Karin Keller-Sutter from the beginning of 2023. Of the two, it was Ueli Maurer who came under fire the most, because he had held his position since 2016 and was the only one who was able to put an end to the decline of Credit Suisse.

The media accused Ueli Maurer of keeping the Federal Council in the dark regarding the real seriousness of the situation and even of having canceled a meeting in November 2022 where it was planned to discuss this subject with its members.

He later admitted that he had avoided passing on certain information, fearing leaks and damage to his reputation.

There is speculation in the media that both Ueli Maurer and Karin Keller-Sutter were opposed to even a temporary nationalization of the bank due to the federal parliamentary elections in October 2023.

The legislators

Parliament also received a fair amount of negative comments for its failure to put in place an adequate framework to deal with the failure of such a large bank.

Some measures have indeed been adopted, such as an increase in capital reserve requirements for large banks. But no legislation was put in place for state emergency funds when it was needed most. Temporary measures were adopted urgently in March.

Parliamentarians were also accused of having listened too much to bank lobbyists who called on the State to exercise restraint in implementing measures concerning “too big to fail” banks as well as in defining the powers of the FINMA.

Absence de coordination

Another area of ​​criticism concerns the way in which these institutions have cooperated throughout the crisis.

FINMA, the SNB and the Ministry of Finance all “protected their own interests above all,” writes Dirk Schütz, editor-in-chief of the business magazine Balance sheetin his book “Too close to the wind: why Credit Suisse had to sink”.

“It is important that the Credit Suisse crisis is handled as transparently as possible by all stakeholders. But what is even more important is that responsibilities are taken during the next banking crisis. Therefore, it is essential to improve cooperation between FINMA, the Department of Finance and the Swiss National Bank,” says an editorial in the Zurich daily Daily Gazette.

The Swiss Bankers Association also said it was “important that the cooperation between the Federal Department of Finance, the SNB and FINMA is further optimized and that the distribution of responsibilities in a future crisis is better clarified.” It is also imperative to resolve these issues before they spiral out of control. There remains in Switzerland a large international bank, UBS, which is worth 1,600 billion US dollars, or double the annual gross domestic product (GDP) of Switzerland.

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