After the collapse of Credit Suisse, the Swiss regulator demanded new powers
Following the collapse of Credit Suisse, Switzerland’s banking regulator promised to change its strategy and demanded more legislative authority on Tuesday.
Swiss authorities mediated a deal in March that saw domestic competitor UBS save the 167-year-old bank from insolvency. The firm had been on the verge of collapse due to a series of risk management blunders and scandals, which caused clients and investors to flee.
The Swiss Financial Market Supervisory Authority (FINMA), in collaboration with the Swiss National Bank and the Swiss government, successfully safeguarded Credit Suisse’s solvency and ensured financial stability, as stated in a report released on Tuesday.
It highlighted the “extensive and intrusive actions” done to oversee the bank in the previous years and “fix the problems, especially with the bank’s management of risks and its culture of risk-taking.”
FINMA warned the bank to take “various measures to prepare for an emergency” beginning in the summer of 2022, but the bank has not responded to the warning.
The CEO of UBS was “pleasantly surprised” by the rapid resurgence of clientele.
In its investigation, FINMA drew many conclusions. A more robust legislative framework, including tools like the Senior Managers Regime, the authority to levy penalties, and stricter regulations pertaining to corporate governance, is necessary, according to the regulator.
“Conversely, FINMA will adjust its oversight strategy in specific domains and increase its evaluation of the readiness to implement stabilization measures.”
Downsizing the investment bank, concentrating on the asset management business, and decreasing earnings volatility were some of the strategic adjustments proposed to de-risk Credit Suisse. FINMA reported that the firm’s image was harmed by “recurrent scandals” due to inconsistent implementation of the proposed reforms.
Also mentioned was the fact that variable compensation was high even in years when the bank lost a lot of money and shareholders didn’t take advantage of chances to change their paychecks.
Credit Suisse was the subject of 43 preliminary investigations for possible enforcement actions between 2012 and the emergency rescue of the bank, according to the regulator. The bank was subject to nine reprimands, sixteen criminal accusations, eleven enforcement processes, and three individual prosecutions.
Credit Suisse was allegedly apprised of dangers on many occasions, with FINMA offering suggestions for improvement and imposing “far-reaching measures.” Among these were “rigorous measures to increase capital and liquidity, changes to the bank’s management and compensation, and limitations on commercial operations.”
Following the merger between UBS and Credit Suisse, the Swiss financial environment is back to normal. The head of EFG
“From 2018 to 2022, it also conducted 108 on-site supervisory reviews at Credit Suisse and recorded 382 points requiring action,” FINMA stated.
There was a high or critical level of danger in 113 of these locations. These numbers and metrics show that FINMA has used all of its resources and authority.
Credit Suisse executives at the time of its demise said that investors had lost faith because of the market panic that began with the U.S. failure of Silicon Valley Bank.
In order to be ready for an existential crisis, Credit Suisse was requested during the summer to implement actions, including selling off parts of businesses or perhaps the entire bank.
Hence, the authority requested “extended options that would enable it to have more influence on the governance of supervised institutions.”
Among these are the ability to publicize enforcement procedures on a regular basis, the ability to impose fines, and the establishment of a senior management regime.
“A more solid legal mandate is required to enable FINMA to effectively intervene in remuneration systems,” it said.