Swiss Regulator’s New Head Seeks Power to Curb Bank Growth

(Bloomberg) — The head of Switzerland’s financial watchdog is seeking the power to rein in banks’ business models as part of his campaign to strengthen the agency.

Finma should be able to intervene if a lender were to put “growth over everything, with no interest in controls and infrastructure,” Chief Executive Officer Stefan Walter said at a conference hosted by the European Central Bank on Tuesday. He’s “very focused” on getting the power to launch an “early intervention” and force any such firm to change, he said. 

Walter’s comments are the latest in a string showing how he wants to toughen up Swiss banking supervision after becoming CEO at Finma earlier this year. The government has made proposals in response to the 2023 collapse of Credit Suisse, though the design of raft of new rules, including those that could raise capital requirements for UBS Group AG, will only be finalized over the next couple of years. 

Walter has also thrown his support behind plans by the government to change the rules governing capital requirements for international lenders based in the country. If adopted, the change could force UBS, the country’s largest bank, to hold as much as $25 billion in additional capital. 

UBS has pushed back against the government proposal, with CEO Sergio Ermotti and Chair Colm Kelleher repeatedly saying it’s the wrong remedy.

Strategic Questions

Speaking at the same ECB event as Walter on Tuesday, Kelleher indicated his support for a broad role of regulators in examining banks’ strategy. 

“I see no reason why a regulator shouldn’t call us out on a business model or a plan,” Kelleher said at the conference. Having a dysfunctional strategy was “clearly one of the issues that happened at Credit Suisse,” he said, adding that holding bank executives accountable for strategic decisions “is a very valid thing for a regulator to do.”

Walter’s comments at the event echoed an interview published by the Swiss newspaper Handelszeitung earlier on Tuesday.

Finma should “be given the authority to prohibit business models in extreme cases or to effect changes in a going concern, in order to ensure the resolution of a systemically important bank in the event of a crisis,” Walter said in the interview.

“If we see a situation in which a bank threatens to endanger a business area through excessive growth with a lack of risk management, controls and infrastructure, we can, for example, prohibit the bank from growing further in that area,” Walter said in the interview. He noted this would require a change in law.

The power to intervene in business models would make banks easier to wind down in case of a crisis, he said. Otherwise, a bank would need more capital.

“If resolvability is not properly prepared, then a bank must hold more going-concern capital to further prevent a crisis,” Walter said. 

–With assistance from Alessandro Speciale.

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