2023-10-10 08:00:00
A global banking watchdog downplayed the Credit Suisse bailout, saying there was no need to revise international rules written following the global financial crash more than 15 years ago to avoid such a debacle .
The Financial Stability Board, an influential group of central bankers, regulators and officials from the world’s largest economic powers, released its “lessons learned” report on Tuesday, concluding that the framework was a success.
In particular, he examined why Swiss authorities chose to support a takeover by major rival bank UBS instead of liquidating the bank under a “resolution” mechanism designed following the global financial crash of 2008.
Officials concluded that “resolution” rules for closing a failing bank without panicking markets might have worked for Credit Suisse, although public funds would likely still be needed for such liquidations.
“This review concludes that recent events demonstrate the robustness of the international resolution framework to the extent that it provided the Swiss authorities with an enforceable alternative to the solution they deemed preferable,” the FSB said.
Only improvements in the way the rules are applied might be needed, rather than changes in their substance, he added.
The report follows an avalanche of criticism of the deal earlier this year, when UBS Group became Switzerland’s largest bank following the government hastily arranged and partly financed UBS’s takeover of Credit Suisse in difficulty.
The collapse of one of the world’s biggest banks and a former symbol of Swiss financial power has blindsided the country’s officials and regulators, who had long grappled with the lender as it moved from a scandal to another.
It was also a test for rules developed following the 2008 financial crash.
After taxpayers bailed out banks during this crisis, regulators developed rules aimed at “solving” the problems of troubled lenders, for example by reducing a bank’s debt to replenish its capital or shifting deposits to another bank.
The 11-year-old framework aimed to end a situation in which banks were “too big to fail” or held authorities hostage in a crisis to prevent markets from spooking.
The report stopped short of criticizing Switzerland, although Bank of England Governor Andrew Bailey said the Swiss had not followed the “manual”, creating “ambiguity” in markets over the credibility of the resolution of the big banks.
The FSB said Switzerland’s action had preserved financial stability, although it raises questions regarding why the resolution approach was not chosen.
The FSB said the Swiss case highlights that to use resolution rules effectively, it is necessary to have adequate public sector support, such as a central bank lifeline, deposit insurance funds or tax loans.
Authorities may also need to be better prepared for an increase in the speed of bank withdrawals due to the 24-hour availability of payments, mobile banking and social media, the FSB said. (Reporting by Huw Jones; Editing by John O’Donnell and Paul Simao)
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