Switzerland’s financial watchdog needs more powers, global regulator says

Not enough teeth? Swiss financial regulator FINMA. KEYSTONE/© KEYSTONE / PETER KLAUNZER

The Swiss financial watchdog FINMA should be given increased powers to make sure it would be able to deal with a failure of UBS if that scenario were ever to play out, a global regulator has said. 

The country should take “additional steps” to ensure it can wind down banks within its jurisdiction without triggering a wider financial crisis, the Financial Stability Board (FSB) said in a release on Thursday.

This has become “particularly important” after UBS’s takeover of Credit Suisse last year made it an even bigger bank, “whose failure could have severe impact on the Swiss economy and the global financial system,” the FSB said. 

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One step to achieve that would be “increasing FINMA’s resources for supervision, recovery and resolution,” the FSB added. The comments from the global standard-setter echo calls from Swiss politicians and FINMA itself to strengthen oversight in the wake of the Credit Suisse crisis.

Switzerland is essentially the only top banking hub that doesn’t allow its regulators to impose monetary penalties on institutions for misdeeds. The government has backed giving FINMA that power, and is looking to overhaul the rules around winding down lenders.  

“We are evaluating the too-big-to-fail framework,” Finance Minister Karin Keller-Sutter said in a Bloomberg TV interview from Davos last month. However, she also said the any reforms need to be balanced with an objective to keep Switzerland attractive as a place of business for financial services providers. 

The Credit Suisse takeover has increased UBS’s balance sheet to about $1.7 trillion (CHF1.5 trillion) in assets, almost twice the size of Switzerland’s GDP.