Credit Suisse was the first field test for the extra-tough rules that apply to the world’s 30 most systemically important banks. This test failed.
(Photo: REUTERS)
Frankfurt The forced merger of the major Swiss bank Credit Suisse with its larger rival UBS has calmed the situation in the financial system for the time being. The Swiss authorities received a lot of praise for this – wrongly.
Because the arbitrary methods with which the authorities prevented the collapse of the big bank show one thing above all: the reform efforts of the past 15 years have failed in their goal of creating a secure banking system.
In fact, special regulations apply to the 30 most systemically important banks in the world. With a lot of capital and a lot of liquidity, they should be able to be processed in the event of a crisis, in a market economy and without tax money.
The Credit Suisse plight was the first practical test for the regulations. It failed: the Swiss authorities bent antitrust law, undermined the rights of UBS shareholders and held Swiss taxpayers jointly liable through state loss guarantees worth billions. It is an oath of revelation by the overseers.
It had little to do with an orderly process. In fact, Switzerland was at the forefront of the movement to reduce the potential for blackmail from banks that are too big to fail. The requirements for their major domestic banks UBS and Credit Suisse even exceeded international standards.
This shows that thick capital and liquidity cushions alone are not insurance for the survival of a bank. After many scandals, the institute did not lack equity and liquidity buffers, but rather the basic trust of customers, investors and business partners.
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This is a problem that extends beyond Switzerland, because the bankruptcy of the Silicon Valley Bank (SVB) and the emergency merger of Credit Suisse are making the global banking giants even bigger: In the USA, customers of medium-sized regional institutes are switching in droves to large banks like JP Morgan. The Swiss economy is even more dependent on the stability of UBS than before. And the messy bailout of Credit Suisse raises doubts that the next banking giant’s distress would be smoother.
This must have consequences for dealing with global banking giants. On the one hand, bank supervisors could try to take more active countermeasures if abuses, such as those at Credit Suisse, accumulate. They can force incompetent board members out of office or prohibit certain transactions. But success is uncertain.
“Soft” factors such as a sick corporate culture or lousy risk management are difficult to grasp and therefore difficult to bring about. From a market point of view, this is questionable anyway. And it also doesn’t solve the basic problem that some banks are so big that you want to save them at any cost.
On the other hand, an alternative would be to make size and global relevance even less attractive so that institutes shrink voluntarily. There are approaches to this in the global rules: the larger and more networked a systemically important bank, the tougher the requirements. Credit Suisse is an opportunity to check whether these requirements are still strict enough.
More: According to experts, UBS is buying a gigantic market power at a surprisingly low price