Credit Suisse Group AG earned solid marks for crisis preparedness as recently as last year, underscoring how quickly the plunge in confidence blindsided regulators and investors before the bank’s near collapse.
(Bloomberg) — Credit Suisse Group AG earned solid marks for crisis preparedness as recently as last year, underscoring how quickly the plunge in confidence blindsided regulators and investors before the bank’s near collapse.
“It is clear that there are important lessons to be learned from the Credit Suisse crisis for future crisis preparations,” Urban Angehrn, Chief Executive Officer of Swiss financial markets regulator Finma, said in a statement on Wednesday. The regulator will “contribute to this objective,” he said.
Credit Suisse came close to bankruptcy despite meeting all of its regulatory capital and liquidity requirements just days before its rescue in March, spurring a debate among global regulators over whether the system of rules is fit for purpose and raising questions about regulators’ own effectiveness given the bank’s history of scandals and mishaps.
In the weeks after the UBS Group AG takeover deal was announced, top Finma officials gave multiple interviews and hosted a lengthy press conference to defend the deal and fend off allegations it didn’t do enough to regulate Credit Suisse as client outflows accelerated and investor confidence in the bank plunged.
Finma’s latest study of the state of Switzerland’s five most important banks was released on Wednesday, which the regulator stresses refers to the period before the rescue of Credit Suisse. The big five are the two large banks soon to be one — UBS and Credit Suisse — plus the three domestic systemically important banks Post Finance, Raiffeisen and Zuercher Kantonalbank. Finma addressed Credit Suisse in an accompanying statement.
Read More: EU Regulators to Rethink Liquidity After Credit Suisse Unravels
Traffic-Lights
Finma adopts a traffic-light system for evaluating the five banks’ preparedness for a crisis: green meaning plan in place, yellow representing cause for some concern as work not yet complete, and red meaning no plausible plan in place. The institutions submitted their emergency planning documents by mid-2022 and the work to ensure that the banks could be smoothly wound down was assessed as it stood at the end of 2022.
Both UBS and Credit Suisse scored green across the board in the categories of a recovery plan, a Swiss emergency plan and institution resolvability. These Finma defines as following:
- Recovery plan: “In the recovery plan, the systemically important institution sets out which measures it will use to ensure its stability on a sustainable basis in the event of a crisis and be able to continue its business activities without government intervention.”
- Swiss emergency plan: “Systemically important banks must demonstrate in the emergency plan that their systemically important functions can be continued without interruption in a crisis. Only functions that are critical to the Swiss economy are deemed systemically important.”
- Resolvability: “Resolvability describes a company’s ability to fail in an orderly manner.”
“FINMA continued to view the Swiss emergency plans of Credit Suisse and UBS as ready to implement,” it said.
The Swiss authorities ultimately decided against winding down Credit Suisse last month on the basis that it would have generated a much broader financial crisis, instead helping broker its emergency takeover by UBS.
Post Finance scored a red for having “no plausible” Swiss emergency plan “for reaching effectiveness’ while Zuercher Kantonalbank notched an amber for still only having a “plausible” Swiss emergency plan.
–With assistance from Nicholas Comfort.
(Updates with further details, background)
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