Swiss National Bank wants more resilience after Credit Suisse crash

In March the Swiss government hastily arranged a rescue deal to combine Credit Suisse and UBS in a bid to safeguard Switzerland’s reputation as a global financial centre. © Keystone / Michael Buholzer

Switzerland’s central bank says important lessons must be drawn from the crisis that led to the takeover of Credit Suisse, the country’s second biggest bank, by its rival UBS. Measures are needed to strengthen banks' resilience, it said on Thursday.

“These measures need to strengthen banks’ resilience in order to prevent a loss of confidence wherever possible and ensure a broad range of effective options to stabilise, recover or wind down a systemically important bank in the event of a crisis,” the Swiss National Bank (SNB) said in its 2023 financial stability report published on Thursday.

Among the measures, the SNB called for banks to be required in the future to prepare a minimum amount of assets that could be pledged for central banks, a step designed to help banks access emergency liquidity if worried customers rapidly withdrew cash.

+ Why a monster UBS bank scares Switzerland

UBS completed its emergency takeover of embattled rival Credit Suisse last week, forging a Swiss banking and wealth management giant with a $1.6 trillion balance sheet.

This came nearly three months after the Swiss government hastily arranged a rescue deal to combine the country’s two largest banks in a bid to safeguard Switzerland’s reputation as a global financial centre and choke off market turmoil.

Politicians and economists have raised concerns whether Switzerland can effectively oversee a bank that now has a balance sheet of $1.6 trillion and 120,000 employees worldwide, and risks associated with that.

+ Credit Suisse to operate under own name after takeover

The SNB said it was not yet able to judge how resilient the newly merged bank would be.

“The currently available data are not sufficient for a comprehensive assessment of the combined bank’s resilience in such a forward-looking analysis,” the report said.

Still, lessons needed to be learned “in view of the higher systemic importance of the combined bank and the associated risks for Switzerland,” the SNB said.

The central bank said there were, however, three key observations to come from the crisis, including that compliance with capital requirements is necessary but not sufficient to ensure confidence in a bank.

Capital instruments designed to absorb early losses were not effective, the SNB said.

“AT1 capital instruments absorbed losses only as the point of non-viability was imminent and state intervention became necessary,” the report said.

The SNB also said that the scale and pace of deposit outflows at Credit Suisse that resulted from the loss of confidence were unprecedented and more severe than assumed under the liquidity regulations.

The SNB first granted a loan of around CHF50 billion and then helped to rescue the bank by negotiating its takeover by UBS alongside the other Swiss authorities, providing two liquidity lines of CHF100 billion each.