In a detailed report released on Tuesday, the Swiss financial regulator, FINMA, shed light on the near collapse of Credit Suisse in late 2022, advocating for increased regulatory powers to prevent similar crises in the future.
According to a Reuters report, the regulator, which has faced criticism for its oversight of the bank, defended its actions during the crisis, stating that it took “far-reaching and invasive” measures to address deficiencies at Credit Suisse. Despite these efforts, the regulator admitted that its actions were insufficient to overcome fundamental issues in the bank’s strategy implementation and risk management.
FINMA Report
The report reveals that from 2018 to 2022, FINMA conducted 108 on-site reviews at Credit Suisse, identifying 382 “points requiring action,” with 113 deemed high or critical risks. Despite these efforts, the regulator contends that its options and legal powers were exhausted.
To prevent liquidity crises in the future, FINMA proposes the implementation of appropriate stress-testing processes and a heightened focus on the feasibility of banks’ liquidity plans.
Notably, FINMA expressed the need for stronger regulatory powers, including the ability to impose fines and the option to publicize details of enforcement proceedings. The regulator is also considering the adoption of a “senior managers regime” to delineate specific responsibilities for senior executives, mirroring a framework already in place in the UK.
The report corroborates details previously reported by Reuters regarding Credit Suisse’s precarious financial situation in the autumn of 2022. The bank was reportedly on the brink of collapse, considering drawing on 50 billion Swiss francs in emergency liquidity support from the Swiss central bank.
The crisis prompted discussions of nationalizing Credit Suisse and injecting 50 billion francs into the bank to keep it afloat. However, the bank, eventually taken over by UBS, decided against this move due to feared negative signals.
See Related: An Acute Case Of Bank Run; How Depositors Wiped Out US$75B From Credit Suisse
Credit Suisse Challenges
In retrospect, Credit Suisse faced severe liquidity challenges in December 2022, with clients withdrawing 138 billion francs during the fourth quarter. The bank was on the verge of utilizing emergency liquidity support but refrained from doing so.
The report discloses that FINMA had imposed higher liquidity requirements on Credit Suisse in response to funding pressures in 2020 and 2021. However, these measures proved inadequate, with the bank initially resisting some of the regulatory interventions.
Only under repeated pressure did Credit Suisse establish a reporting system to monitor the implementation of required measures.
The Swiss government, Swiss National Bank (SNB), and FINMA intervened to support UBS’s takeover of Credit Suisse, aiming to protect the bank’s creditors and ensure financial stability.
With FINMA overseeing Switzerland’s globally important bank, UBS, which boasts a balance sheet nearly twice the size of the entire Swiss economy at $1.6 trillion, the call for regulatory reforms becomes even more pressing.
