Credit Suisse and “banking stability”: a measured approach, please!
At the start of June, the Federal Council published its comprehensive package of banking stability measures, containing almost 30 proposals to tighten regulation. The SBA acknowledges the need for targeted adjustments to increase system stability in the wake of the Credit Suisse crisis, but it views the proposals as overloaded and disproportionate.
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Wide range of measures to prevent crises and strengthen liquidity
The Federal Council has opened a consultation on three measures at ordinance level that runs until the end of September. At the same time, it has published “parameters” for measures at legislative level, which will be subject to consultations at a later date. While some of the proposals are directly linked to the events at Credit Suisse, many others have little or no such connection.
The measures – around 30 in all – are extraordinarily broad in scope and intended not only to ensure better prevention of banking crises and systemic risks and to strengthen liquidity provision, but also to expand the crisis toolkit.
Core prevention measures, for example, include introducing a senior managers regime for selected key functions in bank management and giving the Swiss Financial Market Supervisory Authority (FINMA) so-called “early intervention” powers.
Examples of measures to strengthen liquidity provision in a crisis include extended liquidity assistance from the Swiss National Bank (SNB) and enshrining a state guarantee (public liquidity backstop) into law. Expanding the crisis toolkit, meanwhile, is to involve optimising cooperation between the relevant authorities and broadening the range of options for recovery and resolution, among other things.
Measured approach required that ensures international competitiveness
The SBA has carried out a detailed analysis and assessment of the Federal Council’s proposals. While we welcome targeted improvements to system stability, we also see the international competitiveness of our members and a compelling cost/benefit ratio as crucial.
Overall, we believe that the Federal Council’s proposals have substantial room for improvement in a number of respects. There is a risk that the measures, taken together, will go much too far and bring significant disadvantages not only for the financial centre, but also for the economy as a whole. It is therefore essential for the Federal Council to conduct a comprehensive and meaningful assessment of the regulations’ economic impact in good time.
In addition, when it comes to finalising the finer details of this major project, one of the central sticking points will be defining an appropriate scope of application for the various measures. In our view, they must be aligned with the specific risks of institutions whose circumstances differ, i.e. they must respect the principle of proportionality. A measured approach is vital in banking regulation, so a “one size fits all” strategy would very definitely be a mistake.