2023-06-08 18:13:22
Keller-Sutter’s controversial expert makes mild suggestions for the megabank
The institute of HSG professor Manuel Ammann is sponsored by Credit Suisse. In a report ordered by the federal government, he speaks out against a split or
bonus restrictions.
Tips for the Federal Council: Manuel Ammann.
Photo: PD
The Federal Department of Finance has published a first detailed report on possible regulation of the only remaining major Swiss bank, UBS. The 65-page report, about which the NZZ has reported comes from a group of authors led by Manuel Ammann.
Ammann is a finance professor at the University of St. Gallen – known as HSG – and will become its rector in 2024. He is also academic director of the HSG Center for Financial Services Innovation.
That commitment was at the end of March, when liberal finance minister Karin Keller-Sutter commissioned the report, triggers for criticism. The “Wochenzeitung” had written that the center would receive ten million francs from Credit Suisse as part of a sponsorship over a period of ten years.
Finance Minister Karin Keller-Sutter appointed Ammann as an expert, although his institute is co-financed by Credit Suisse.
Photo: Christian Beutler (Keystone)
This circumstance raised questions among observers about Ammann’s independence in the big bank issue. Both Ammann and the finance department considered the order to be unproblematic.
At least the present report on the “need for reform in the regulation of ‘too big to fail’ banks” cannot dispel the doubts. Ammann considers the most drastic measures that have been discussed so far and which should make it impossible for the state to rescue UBS to be unsuitable. These include, in particular, various proposals that the SP had made in Parliament.
“Such measures do not guarantee that a bank will never get into a crisis, even if they help to discipline management.”
In the report, Ammann criticizes the idea of a separate banking system, in which various banking units such as asset management and investment banking are separated according to function. According to Ammann, even isolated units could be systemically important. Such a model is even dangerous, since it is no longer possible to diversify risks across different business areas.
Ammann also does not believe that compensation for the de facto existing state guarantee for systemically important banks is appropriate. In his view, it could lead to bank managers taking inappropriate risks because the negative consequences of their bank’s failure would be less severe.
Critical to bonus caps and more equity
Ammann also comes to a critical conclusion on the question of the prominently discussed bonus restrictions. He predicts that they would probably lead to an increase in fixed wages, which would make the bank less flexible in the event of a crisis. “Furthermore, such measures do not guarantee that a bank will never fall into a crisis, even if they help to discipline management,” writes Ammann.
However, he also states that such requirements can represent a useful addition to the previous so-called “too big to fail” regulation. In the report, he criticizes that this was not sufficient in the case of Credit Suisse.
Ammann is just as skeptical about increasing the equity ratio to 15 percent. The National Council decided on this at the extraordinary session at the beginning of April. UBS would have to raise CHF 100 billion to reach the goal. The advantages that such a measure would have for the stability of the bank could not outweigh this competitive disadvantage.
On the other hand, the St. Gallen professor is more positive about the financial market supervisory authority having the power to fine if a bank does not meet certain requirements.
However, he sees the greatest lever for the stability of the new UBS in the question of the bank’s liquidity. In the days before the takeover of Credit Suisse by UBS, the National Bank and the Federal Council had opened the floodgates – partly by emergency law. A state guarantee of 100 billion was also used. This became necessary because Credit Suisse could not offer the National Bank enough valuable collateral to obtain liquidity directly from this bank.
Ammann’s proposal now: UBS should structure its investments in such a way that it could offer them to the National Bank as guarantees on a large scale in the event of a similar bank run.
Federal Council wants to deliver next April
If, despite all these measures, UBS is threatened with collapse, Ammann proposes temporary nationalization. Such was also an option for Credit Suisse on March 19 – but only in the event that a takeover by UBS had not worked out.
Ammann’s considerations are now being incorporated into the work of a panel of experts put together by the Federal Council following the emergency takeover of Credit Suisse by UBS. The task is to deal with “strategic considerations on the role of the banks and the state framework with regard to the stability of the Swiss financial center” in a separate report by mid-August.
This report, in turn, flows into an assessment by the Federal Council on how to deal with systemically important banks, which it intends to present in April next year. If the Federal Council follows Manuel Ammann’s proposals, it will not make any fundamental changes to the regulation of the big banks.
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