Special report
to handle shocks from financial stress, along the way strengthening their transparency and disclosure obligations. As a US-based bank, SVB was not obliged to follow Basel III, and leveraged this loophole to run a riskier business, in the end leading to its downfall. It’s a domino trail that takes us back to – but critically stops at – Credit Suisse.
In the immediate aftermath of the collapse, fears floated around of European neighbour Deutsche Bank following suit. “Except, nothing happened to Deutsche Bank,” adds Bris. “At some point, investors realised there weren’t internal problems with Deutsche Bank, just a market panic. Once the market was at peace, everything was back to normal and banks are actually showing good profitability figures recently.” Meanwhile, the fact that UBS and Switzerland’s 230-odd other banks are stable overall testifies, Rohner argues, “the fact that the Swiss financial centre is still rock-solid”. While Rohner’s confidence and certainty in the regulations are obvious, he also admits that “it is evident that light will need to be shed on liquidity stress testing and, along with international efforts, on particular aspects of ‘too big to fail’ (TBTF) provisions”. Since 2012, TBTF regulations have set higher capital requirements, increased liquidity requirements and higher requirements in terms of resolvability. While TBTF reforms have made banks generally more resilient, even the SBA concedes that Credit Suisse shows there are still gaps to fill. As part of that process, the SBA has committed to an open-ended review of the events around Credit Suisse’s collapse – and whether the rules were applied quickly enough this time around. “An accurate understanding of the relevant facts, actions and developments is indispensable to derive meaningful recommendations for the further improvement of regulation and to ascertain responsibilities,” Rohner explains. While we must wait until that review is published to get a concrete answer of where the regulations can be improved, from speaking with Rohner it is clear that the SBA does not believe in ripping up the regulatory system and replacing it with entirely new measures. Rather, Rohner says, the review will be “geared towards the targeted development of the existing regulatory system, which is based on proportionality and, accordingly, structured in a nuanced manner”. That’s because, ultimately, regulations cannot protect against reputational damage – and even if they could, how can they accurately determine when negative publicity will lead to a loss? Recalling a reputation is extremely difficult, and by the time Credit Suisse recognised its faults and attempted to clean up its act, it was too little too late. While it may be too early to draw any clearer conclusions from the ordeal, however, Bris does hint that the regulatory measures – and in particular the crisis resolution rules – for bailing out banks are not robust enough.
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www.nsbanking.com
“We need to truly reconsider how we’re going to cope with banking crises in the future,” he argues, “because so far the only solution that seems to work is government intervention.”
Swiss peak?
It may seem that UBS and Credit Suisse may not be out of the woods just yet. Details of the merger have been slow to filter into the press – and the few that have suggest there will be global layoffs in the tens of thousands – Rohner remains characteristically diplomatic. When asked about the future of the banks following the merger, he says he can’t comment on the business activities and development of individual member institutions. This is more likely a reflection of his responsibilities as SBA chairman – as opposed to the stereotype of his nationality – but also given that at our time of speaking, UBS has only just begun with the integration of Credit Suisse and “there is no sufficiently reliable indication regarding the size of UBS after the planned integration”. Rohner is keen, however, to acknowledge that the merged bank is about 40% smaller than UBS alone was before the financial crisis, while Switzerland’s economic output has grown by a quarter during the same period. “The financial sector has built up jobs to a level not seen since 2017,” he says, “[and] that unemployment rate in the sector is very low and that banks are desperately looking for qualified staff.” Bris, for his part, seems less optimistic about the future of the Swiss financial sector – and for the country as a whole. “The Swiss brand has been damaged by this crisis a lot,” he concedes. “As a brand, it used to represent stability, [but] it is not anymore. It is not the risk of the Swiss banks, but the risk of Switzerland as a country.” As the infamous quote goes: it takes a lifetime to build a good reputation, but it can be destroyed in a minute. Let’s hope that for Switzerland’s sake, it actually takes more than one weekend, and one bank’s downfall, to truly shatter the country’s long legacy of trust and good governance. ●
While an independent investigation found no illegal conduct, it did rule that Credit Suisse executives had failed to ‘effectively manage risk’.
$3.25bn
The purchase price of Credit Suisse to UBS.
$5tn The total assets
under management of UBS immediately after the merger. UBS
35,000
The total amount of Credit Suisse workers predicted to lose their jobs in the next year.
Fortune 15
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Shutterstock.com
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