The crisis at Credit Suisse Group AG shows the need for new regulations requiring banks to hold sufficient disposable assets at any time, Swiss National Bank President Thomas Jordan said.
(Bloomberg) — The crisis at Credit Suisse Group AG shows the need for new regulations requiring banks to hold sufficient disposable assets at any time, Swiss National Bank President Thomas Jordan said.
When the ailing lender was unable to provide enough collateral in exchange for liquidity, the Swiss government had to draft emergency legislation in March allowing the central bank to provide assistance all the same.
“In the future, regulations will have to compel banks to hold sufficient assets which they can pledge or transfer at any time without restriction,” Jordan said on Friday at the SNB’s annual shareholder meeting in Bern.
The central bank agreed to provide a maximum of 200 billion francs ($224 billion) — the equivalent of about a quarter of Swiss annual economic output — in liquidity assistance without collateral. Half of that was guaranteed by the government, while the SNB received privileged creditor status for the rest.
“We provided this liquidity only because rapid action was critical to restoring counterparties’ confidence in Credit Suisse and stopping the outflow of client funds,” Jordan said.
The government-brokered takeover by UBS Group AG that stemmed the crisis now means that sufficient competition has to be ensured to allow the transmission of monetary policy, the SNB chief said.
“We will make sure that this issue, too, is given due consideration in the discussions about the future of the Swiss banking sector,” he said.
In results published Thursday, the central bank revealed about 112 billion francs of “secured loans and loans under emergency law,” which includes liquidity assistance to Credit Suisse. The SNB also posted a quarterly profit of 26.9 billion francs after a record loss of 132.5 billion for last year.
Also speaking at the AGM, Barbara Janom Steiner, chief of the central bank’s supervisory body, said it’s of “paramount importance” that the institution maintains a sufficient equity buffer. While the SNB would be “entirely able” to fulfill its mandate even with negative equity, that could jeopardize its credibility, she said.
Once sufficient profits are generated again, shareholders will be the first to receive a dividend and only after that will payouts to the Swiss government and cantons be resumed, Steiner said. Neither received money this year.
The SNB is a publicly listed company, though shareholders’ rights are restricted and they can’t influence monetary policy.
The central bank is undertaking its most aggressive rate-hiking cycle in years, having increased borrowing costs by 225 basis points since June. Jordan on Friday reiterated officials “would continue to tighten monetary policy if necessary.”
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